With BSE modifying its trading system to accept negative price orders and execute them, traders are awaiting a similar notification from the Multi Commodities Exchange as well. Almost all trading in crude oil futures in India happens on the MCX platform.
BSE in a notification said that the modified system shall be available to members and vendors from May 4.
The CME group, which owns NYMEX, had issued a notice on April 15 informing members that it was making changes to the trading system to process negative prices for Crude futures. Soon after crude futures expiring in May slipped into the negative territory. While MCX settled crude futures expiring in April at negative prices, it has not informed members and clients of any changes at the system level.
Brokerage houses Motilal Oswal Financial Services, Religare Securities, and PCS Securities moved court challenging MCX’s decision to settle April crude futures contract at negative 2884 rupees per barrel, even as the exchange did not have provision for negative settlement price. The Delhi court, in one of the hearings has directed all parties to provide submissions in a month.
Brokers like Motilal Oswal, Angel Commodities have suspended trading in crude oil. Other brokers like Anand Rathi, Religare, Zeroda are known to be charging 100-300 percent margins because of the volatility in crude prices.
Crude oil is the most heavily traded and liquid commodity contract globally. With, demand for oil falling off a cliff because of the lockdown in most parts of the globe, crude oil prices too have been in a free fall, touching a record low of minus $40 to the barrel.
There are projections are that US Cushing storage will be full by Mid-May, and the May 19 expiry of crude futures is being watched as big funds and exchange traded funds start offloading their long positions way in advance to avoid getting stuck at the last moment.
The next couple of months are expected to be volatile for crude oil as the storages fill up, production still continues, and the demand recovery is slow and patchy across world.
With WTI crude being very volatile, the world has started looking at Brent as a more reliable global benchmark. The OPEC and oil experts believe that when a recovery set in by the second half of 2020, Brent prices may rebound to around $40 a barrel.
First Published: IST