In wake of record slump in the West Texas intermediate (WTI) contract price for May, Multi Commodity Exchange Clearing Corporation (MCXCCL), a wholly owned subsidiary of the Multi Commodity Exchange (MCX) of India, settled April expiry at a negative Rs 2,884 per barrel, in an unprecedented move which was never seen in India's commodity derivatives history.
As a result, many retail traders with long positions in the April 2020 contract would now have to pay around Rs 1 lakh for every lot of crude, i.e. 100 barrels, at the MCX quoted closing price of Rs 965 on April 20, as per Moneycontrol report. This was calculated assuming the trader would have paid the full value of the contract.
Considering that 11,000 oil futures contracts remained opened on Indian commodity exchange at the end of the day, the loss for all long positions have been pegged around Rs 418 crore, the report said.
In a circular issued on Tuesday, MCXCCL said crude oil futures contracts expired on April 20 need to be settled at, while taking into account the price of the front month contract, i.e. May 2020 in this case, which was trading at a negative $37.63 per barrel (or negative Rs 2884 per barrel) around 11 pm.
"The crude oil futures contracts expired on April 20, 2020 are also being settled on New York Mercantile Exchange WTI crude oil front month contract's settlement price (i.e. -$37.63) converted into Indian rupees (RBI USD-INR reference rate: 76.6335) and rounded off to the nearest tick," MCXCCL said in a statement.
MCX relies on the NYMEX exchange for pricing the crude oil contracts. The demand for oil has taken a severe hit across the world due to coronavirus-forced lockdowns.
"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," it added.
The exchange said that crude oil futures contracts are traded in MCX for the last 15 years and the said contracts are always settled at due date rate as specified in the contract specification, i.e NYMEX WTI Crude Oil front month contract's settlement price converted into Indian rupee.
Earlier in the day, MCX had fixed the interim settlement price of April crude oil futures contract at Re 1 per barrel to arrest large-scale defaults amid falling oil prices in the US.
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US oil futures slipped below zero for the first time on Monday as demand for energy collapsed in wake of coronavirus pandemic which has frozen economic activity globally. The contract for West Texas Intermediate crude, the benchmark for US crude prices, slumped below $0 per barrel level on April 20. The May crude futures witnessed sharp sell-off ahead of Tuesday's expiration and closed Monday's trade at minus $37.63 a barrel, down 306 per cent.
Irked by the negative price, commodity brokers are exploring ways to challenge the MCXCCL's settlement price of April crude oil futures in the court, as per meia report.
By Chitranjan Kumar