MCX creates history of sorts, settles April crude oil contract in negative

Chances of huge defaults by investors, many of whom are retail traders gone long; On Nymex, there were actual trades in minus in which sellers were actually paying buyers to lift stocks

Toeing a 300 per cent fall in WTI crude oil, which plunged to -$37.63 a barrel on the New York Mercantile Index (Nymex) on Monday, the Multi Commodity Index (MCX) on Tuesday settled April expiry at -Rs 2,884 per barrel. It was for the first time that the price of the commodity settled in negative territory in India.

This could lead to defaults by many investors, largely retail traders who had taken long positions. The negative price and that too without trading irked brokers, who will have to come good even if their clients default. There were 11,500 open interest lots.

On Nymex, there were actual trades in the negative, which meant sellers were giving money to buyers to lift the stock. However, the MCX in the morning declared provisional rate of Rs 1 as settlement, but by the evening, it announced the price of -Rs 2,884 a barrel. With the MCX trading hours ending at 5 pm because of the lockdown, several traders took the negative rate  as a setback. The exchange has now announced that all non-agri commodities, which have global reference rates, will trade until 11.30 pm as before. All agri commodities, even if they have global reference rates, will close at 5 pm. 

On the trading front, crude oil continued to crash and it was extended to Brent Oil. The May MCX contract, which is based on WTI shale oil, also fell sharply on Tuesday to Rs 1,328, down 25 per cent. WTI-Nymex May contract, trading of which entered negative territory on Monday a before its expiry, was quoted at $8.74 per barrel (11.28 pm IST). The WTI June contract also fell 22 per cent to $15.85 per barrel.

Brent crude, too, was trading below $20 a barrel. It was nearly 27 per cent or -$6.82 down at $18.75 per barrel.  

Giving the reason for settling April crude oil contract in negative, the MCX stated: “The crude oil futures contracts... are always settled at due date rate as specified in the contract specification i.e the New York Mercantile Exchange’s  WTI crude oil front-month contract’s settlement price converted into the Indian rupee — which comes to -Rs 2,884. The final settlement on account of the difference between the provisional and the final settlement price shall be accounted in the obligation for trade date April 21, 2020, and settled on April 22, 2020.”  

As the fall in crude oil prices continued on Tuesday, a majority of commodities derivatives witnessed heavy selling. This was because further margin requirements were triggered in crude oil and to meet margin demand, there was widespread selling. 

Even agri commodities were not spared.  Ajay Kedia, director, Kedia Advisory, said: “The fall in WTI crude prices has impacted other commodities due to margin calls pressure.” 

In afternoon trade, except natural gas, all the commodities traded on MCX and agri commodities on the NCDEX were falling and closed lower.