MCX bets big on mini-crude oil contracts

FMC has received 30 requests for such contracts

The Multi Commodities Exchange (MCX) is betting  on the mini version of its crude oil contracts. It is hoping these  contracts will help the reach volumes achieved prior to the imposition of the commodities transaction tax.

Several trade and industry bodies have shown interest saying these will give them the opportunity to hedge smaller requirements.

A company official said it would launch a mini-crude oil contract soon. Small and medium-sized enterprises (SME) entities also have written letters to the regulator to launch crude oil mini contracts.

"Smaller manufacturers also require energy for the manufacturing process, hence we requested the FMC (forward markets commission) to start mini contracts in crude oil. The FMC had given us a positive response,” said Jayram Krishnapta, president of Copper Consumers Association of South India.

Copper processors need naphtha as fuel, a derivative of crude oil. Even plastic processors, chemical manufacturers and users, synthetic yarn spinners and weavers, along with many other industries, can hedge their raw material costs with these contracts.

FMC is said to have received around 30 letters from the association to launch mini crude oil contracts.

Currently, an entrepreneur can hedge 100 barrels of crude oil in one contract, which amounts to Rs 3,60,700 per lot. Smaller firms cannot afford such a large contract as their requirement is not so big. But with crude oil mini contracts, they can hedge 10 barrels. The MCX crude oil contract is benchmarked against Nymex WTI crude oil, which comes to Rs 3,607 per barrel on MCX.

Trading interest in crude oil contracts has increased significantly in recent quarters following volatility in crude oil prices. With mini contracts being launched, even hedging from smaller firms is expected to increase.

Crude oil on MCX currently has an open interest of 28,098 lots, as of December 22, compared to 10,638 lots as of January 1.

Volumes of crude oil on MCX were at 8,579 lots as of January 1 compared to 181,935 lots on December 22.