Crude Oil is not the widely used energy resource but also one of the widely traded commodities, apart from gold. Crude Oil has the tendency to heavily influence the global stock market and the economy. That’s what makes crude oil a versatile commodity to trade in the commodity market. Many professional traders see good opportunities in crude oil and prefer to trade in crude oil due to its high liquidity. However, high-volatility in crude oil is like a double-edged sword which can give all the dramatic ups and downs. It means the possibility of losing money in trading crude oil is also very high.
Besides, most players of crude oil trading are commercial players, big hedge funds, and the professional traders who are dominating the crude oil market. On one side the commercial players like oil producers trading in the crude oil futures market to hedge physical exposure from possible big market swings. On the other hand, the big hedge funds speculate on the short term direction of the crude oil. This left a little or no room to profits for small traders.
That’s where you need crude oil trading tips or need a crude oil strategy to execute those trades. Thus, we’ve come to provide you with a crude oil trading guide for all traders who are planning to trade in crude oil on MCX.
How to trade Crude Oil on MCX? – MCX Crude Oil Trading
MCX Crude Oil is the widely traded commodity which actively trades on MCX. On an average, the Rs. 3000 crores of crude oil (across all contracts) traded on a daily basis. In terms of barrels, it is near 8500 barrels of crude oil. As we were talking about, the major players of crude oil trading in MCX are either corporate, retail individual traders or both.
When you start trading, you will start seeing both upstream companies such as ONGC, Reliance and downstream companies such as Indian Oil, Bharat Petroleum, and Hindustan Petroleum trading and placing orders on MCX in order to hedge their positions in the spot market.
However, you as a retail trader will be only speculating on the crude oil prices. Anyways, if you are planning to trade in crude oil then you can trade in the derivative instruments that allow you to trade on the future price of crude oil.
There are two types of crude oil contracts which are traded on the MCX –
- Crude Oil
- Crude Oil Mini
So, either you can trade in crude oil (big) or crude oil mini. On the Multi-Commodity Exchange (MCX) the crude oil futures contracts are available as per the Contract Launch Calendar with the trading unit of 100 barrels. On futures exchanges, the price of crude oil fluctuates in 1 rupee increments. The increment here is the “tick value” which is the smallest movement a crude oil futures contract can make. It is the tick movement that determines the net profit or loss of the trader.
Unlike other commodities on the MCX, the margins on crude oil contracts are slightly higher. Every month, the new crude oil contracts launch with an expiry scheduled six months later. The contract expiry is on the 19th of every month.
Now that you are interested to trade in MCX Crude Oil, your profits and losses will depend upon the fluctuation in the price of crude oil. In India, the crude oil price largely depends upon:
- International Crude Oil Prices
- Rupee-Dollar Rates
Traders and digital participants, who don’t give any thoughts to these above reasons, usually fail to take full advantage of crude oil fluctuations. However, the crude oil can offer a great opportunity to the traders and digital participants to receive potential profits in almost all market conditions due to its unique image in the world’s economic and political systems.
Thus, it is important to understand the factors that affect the crude oil prices in India. These are not just the steps but also the ways to make profits in trading crude oil on MCX in India.
Factors Affecting Crude Oil Prices:
In this turbulent market, you need to get the proper understanding of the reasons behind the fluctuation in crude oil prices. There are certain factors that drive the crude oil market and move its cost up and down.
Some crucial factors that drive the crude oil prices on MCX are given below:
International Crude Oil Prices:
Prices’ ruling the international markets play a major role in the MCX crude oil trading. According to the Indian market scenario, the oil consumption of the country has expanded at a CAGR of 2.98% during 2008-2017. Even there is a rise in the petroleum-based products. The international prices play a major role because India is the major importer of crude oil. In FY17 total crude oil imports were near USD 80.3 billion, accounted for 82% of the country’s total oil demand in comparison to USD70 billion in FY16. The continuous growth in the emerging markets leads to an increase in the demand of oil for production and transportation. Besides, the rise in income will automatically increase the demand for oil in the country for automobile reasons. So, any fluctuation in international prices could affect the crude oil prices in India.
OPEC is the Organization of Petroleum Exporting Countries which founded in the year 1960 in Baghdad. This organization controls the global oil market from seven major international oil companies. OPEC is the primary driver of global oil prices. Any announcement by OPEC could turn on and turn off the global oil prices and production. Thus, many traders who trade in MCX crude oil routinely use the economic calendar to see the important updates on the OPEC. Not just commodity traders but stock investors and traders as well. It is because OPEC is the major economic indicator that can drive the prices of shares in the stock market too.
You must be wondering, why you should care so much of OPEC announcements?
Well, India imports more than 80 percent of its oil requirement and OPEC controls the global oil market. So, if OPEC gets aggressive on its supply program, it could mean huge trouble for us. It is because diesel and petrol consumption is very high in India. Higher crude oil prices mean costlier petrol and diesel.
Weather is one of the most consistent factors that affect crude oil prices. The variability in weather seriously influences the crude oil prices. It is because when the cold weather strikes the demand for heating oil increases. However warm weather decreases the oil consumption and causes a surplus.
Movement in USD-INR:
The currency exchange rate movements especially the US dollar influence the crude oil prices very much. The reason behind this is the popularity of the US dollar. Many countries along with India are major importers of Oil; pay in US dollar for the imported oil.
Apart from this, the geopolitical events, EIA Crude Oil Inventory, government trade policies such as import duties, penalties, and quotas, changes in the refinery sector also influence the crude oil prices. There are big opportunities in trading crude oil but to make consistent profits, one requires exceptional skills to make potential profits in trading Crude Oil in MCX. Thus, make sure you are completely aware of MCX Crude Oil Futures Contracts and what factors affect the crude oil prices in MCX.
Hope, this article succeeds in providing the necessary information on “How to trade crude oil on MCX?” Nevertheless, if you have any query or would like to suggest something then doesn’t forget to mention in the comment section below.