The crude oil price for September deliveries on Monday jumped 8.68 per cent, the highest in a single day in 22 years, on the Multi Commodity Exchange of India (MCX), after a drone attack on a Saudi Aramco's oil facility on Saturday shaved 5.7 million barrels of daily production.
Crude oil traded at Rs 4,265 a barrel on the MCX. “The sharp increase in the crude oil price has triggered a margin call. Traders with the long-side position were okay, but those having the short-side position got trapped. Traders paid margins by selling their positions in equities and other asset classes,” said Kishore Narne, associate director, Motilal Oswal Financial Services.
While the sudden rise in the oil price on the MCX has covered value-at-rise (VAR) reserves of 10 per cent, it has spurred a margin call. Short traders had to cover the margins either by squaring off their standing positions at the current price, or selling their positions in equities or other markets.
“While the position building (sell or buy) side is difficult to ascertain at this point, there is certainly a short covering. Meanwhile, bullion prices remained supportive but not as bullish as crude oil,” said Gnanasekar Thiagarajan, director, Commtrendz Risk Management Services.
Gold for delivery in October moved marginally up by 1.38 per cent to trade at Rs 38,040 per 10 gram and silver for December delivery jumped by 2.36 per cent to Rs 46,840 a kg on the MCX.
The oil price is likely to remain firm in the short term. But, any sharp jump would hurt the world economy, including the US. “Hence, the Saudi Arabian government may soon call for the release of part of its strategic oil reserve to keep the price under check. But the damage in Saudi Arabia seems to be much worse,” said Narne.