InvestorQ : How can I trade crude oil futures on the commodity exchanges?
Aishwarya Nimbalkar made post

How can I trade crude oil futures on the commodity exchanges?

3 years ago

In the Indian commodity exchange (MCX), crude oil is one of the most popular and liquid commodity futures contracts. Even within the crude oil basket there are 2 sub-contracts. There is the more popular Big Oil contract which has a lot size of 100 barrels while the less used Crude Oil Mini contact has a lot size of 10 barrels.

Globally, oil is typically measured in barrels and is popularly referred to as British Barrels (BBL). One barrel here is approximately equivalent to about 162 litres of oil. Unlike in case of gold where the troy ounce price of gold has to be converted into INR, in the case of oil the conversion is quite straightforward. Since both the benchmark crude and Indian crude futures are dealt on per barrel basis, the conversion just involves multiplying the Brent Crude price with the exchange rate.

So if the latest price of Brent Crude is $49/bbl and the exchange rate is 64/$, then the Indian crude oil futures should be trading at around the level of Rs.3136/barrel. Of course, there will be costs like cess and other levies which will be added. But this direct Brent crude conversion is the basis for setting the price of crude futures in India.

At any point of time, there will be 6 crude contracts that are open and traded although the volumes and liquidity is normally concentrated in the near month contract. So, in August 2017, the exchange will introduce the February 2018 Crude Oil contract. It needs to be remembered that unlike in case of equity derivatives, there is no uniform expiry for commodities. While Gold has its expiry on the 5th of each month, Crude Oil contracts will typically expire on the 19th or the 20th of the month.