CRUDE OIL

Crude oil is a naturally occurring and flammable liquid found in rock formations in
the earth. It consists of a complex mixture of hydrocarbons of various molecular weights
plus other organic compounds. It is often referred as the “mother of all commodities”
because of its importance in the manufacturing of a wide variety of materials.

APPLICATIONS
Crude oil is used to produce fuel for cars, trucks, airplanes, boats, and trains. It is also used for manufacturing a
wide variety of other products, including asphalt for roads, lubricants for all kinds of machines, and plastics for toys,
bottles, and food wraps, among others.
Due to the chemical structure of oil, its long hydrocarbon molecules can be “cracked” or recombined into shorter
molecules that have different characteristics. It is because of this property that crude oil can be made into a variety of
products, including tar, gasoline, diesel, jet fuel, heating oil, and natural gas.

INDIAN OIL MARKET SCENARIO WORLD OIL: Production

(million barrels per day)
Ÿ In FY24 Crude oil production in India was 199 million barrels,
meanwhile the consumption stood at 1,917 million barrels. 2023 2022
India has a proved reserve of 4,543 Million barrels. OPEC 34 34
Non-OPEC 62 60
Ÿ Crude Oil consumption in Indian expanded at a growth rate
of 3.8% during 2013-2023.India's crude oil consumption Source: Energy Institute Statistical Review of World Energy

stood at 5.4 million barrels per day.

Ÿ During FY24 crude oil imports were valued at Rs. 11,00,589
Crores, where as product imports were valued at Rs. 1,90,914 WORLD OIL: Consumption
(million barrels per day)
Crores and Total product exports were valued at Rs. 3,94,153
2023 2022
Crores.
OECD 45 45
Ÿ Rapid economic growth is leading to increasing demand of Non-OECD 55 52
oil for production and transportation. Hence, India’s
Source: Energy Institute Statistical Review of World Energy
dependency on oil imports is likely to increase further.
Ÿ With rising income levels, demand for automobile is
estimated to increase, in turn leading to augmented
demand for oil and gas.
INDIA CRUDE OIL PRODUCTION AND CONSUMPTION
2500

2000
Million Barrels

1500

1000

500

0
2019-20 2020-21 2021-22 2022-23 (P) 2023-24 (P)

Crude oil production

Crude oil consumption (in terms of refinery crude processed)
Source: Petroleum Planning and Analysis Cell (PPAC)
Variants:
Two factors that determine the market value of a specific FUTURES OPTIONS
grade of crude oil are density (measured in American
Petroleum Institute (API) gravity) and the sulphur content,
CONTRACTS Vs CONTRACTS
respectively, which are representative of how light and
sweet or sour the crude oil is.

DEFINITION
West Texas Intermediate
A high-quality crude oil explored and physically traded in An agreement which
the U.S., West Texas Intermediate is one of the largest
gives the buyer the
traded commodity in the world. Its API gravity is An agreement to buy
right but not the
approximately 39º API and has 0.24% sulphur content. The or sell an underlying
obligation to buy or
New York Mercantile Exchange (NYMEX Division of CME on a certain date and
sell an underlying at
Group) is the primary exchange facilitating futures trade in at a certain price, in
a certain price on or
this light sweet crude oil. the future.
before a certain
date.
Brent Crude Oil
Crude oil from the North Sea, UK, Brent is a pricing OBLIGATION
benchmark for crude from Europe and Africa. With an API
gravity of 38º API and 0.4% or less of sulphur content by
weight, Brent crude oil is the second most traded variety of Buyer and seller are Only seller is
crude in the world. both obligated to obligated to honour
honour the contract the contract on
Middle East Crude Oil upon expiry. expiration.
It is generally taken as the arithmetic average of Dubai and
Oman crude grades. An API gravity between 31º API and
37º API and 2.05% or less of sulphur content by weight
MARGIN ACCOUNT
makes Middle East Crude Oil a heavy and sour crude oil. It
is a variety with a very large physical market in the Gulf
region. Most of the Indian refineries use crude Both parties need to Only option writer
benchmarked against Middle East Sour Crude Oil. TOCOM maintain a margin. maintains a margin.
is a prominent futures trading platform that offers trading
in this grade of crude oil.
ADVANCE PAYMENT/
CONTRACT PRICING
FACTORS AFFECTING MARKET FUNDAMENTALS:
Ÿ Prices ruling in the international markets
Requires upfront
Ÿ Currency exchange rate movements, especially, the US No, except the
fixed premium from
dollar initial margin.
the buyer.
Ÿ Economic factors: industrial growth, global financial
crisis, recession, and inflation
Ÿ OPEC announcements RISKS
Ÿ Weather variability
Ÿ Government trade policies (import duties, penalties, Option buyer has
and quotas) Both buyer and
seller have limited risk; Option
Ÿ Geopolitical events writer has unlimited
unlimited risk.
Ÿ Changes in the refining sector; for example, a drop in risk.
the refinery utilisation rate
Ÿ US crude and product inventories data
 CRUDE OIL PRICE MOVEMENT*

OPEC+ announced cuts to Military clashes between Israel and the

production amounting to Saudi Arabia said it will Signs of any direct conflict
Palestinian Islamist group Hamas ignited
8,000 about 1.16 million barrels extend a voluntary oil 7,792 fears of oil supply distruption
between Israel and Iran that
per day. output cut of one million could further tighten supplies
barrels per day (bpd)
Intensified war in
7,366 Ukraine and US
7,284 sanctions
7,000 6,815
`/Barrel

6,844
6,503 Tensions in the Red Sea 6,028
6,000 kept disrupting global
trade
U.S. crude oil inventories 5,717 6,181
fell during August 2023 on
5,529 account of strong exports OPEC+ left room for 5,668
and refining run rates voluntary cuts from 8
5,000 Weak economic data from US
and lower Chinese oil refinery members to be unwound
throughput from October onward Israel attacks not
Unease over Credit Suisse and disupting iran enegy
other US spooked world facilities
markets
4,000
Jan - 23 Jun - 23 Oct - 23 Mar - 24 Jul - 24 Dec - 24

Source: MCX | *near month prices

SALIENT SPECIFICATIONS OF MCX CRUDE OIL AND CRUDE OIL MINI FUTURES CONTRACTS
CRUDE OIL CRUDE OIL MINI
SYMBOL CRUDEOIL CRUDEOILM
Description CRUDEOILMMMYY CRUDEOILMMMMYY
No. of contracts a year 12
Contract duration 6 months
TRADING
Trading period Mondays through Fridays
Trading session Monday to Friday: 9:00 a.m. to 11:30 p.m. / 11:55* p.m. (*Based on US daylight saving time period.)
Trading unit 100 barrels 10 barrels
Quotation/Base value ` / barrel
Maximum order size 10,000 barrels
Tick size (minimum) `1
Daily price limits The Exchange has implemented a narrower slab of 4%.
Whenever the narrower slab is breached, the relaxation will be allowed up to 6% without any cooling off period in the trade. In case
the daily price limit of 6% is also breached, then after a cooling off period of 15 minutes, the daily price limit will be relaxed upto 9%.
In case price movement in international markets is more than the maximum daily price limit (currently 9%), the same may be further
relaxed in steps of 3%.
Initial margin Minimum 10% or based on SPAN, whichever is higher
Extreme Loss Margin Minimum 1%
Additional and/or special margin In case of additional volatility, an additional margin (on both buy side and sell side) and / or special margin (on either buy side or sell
side) at such percentage, as deemed fit, will be imposed in respect of all outstanding positions.
Maximum allowable For individual clients: 4,80,000 barrels or 5% of the market wide open position, whichever is higher for all Crude Oil contracts
open position combined together.
For a member collectively for all clients: 48,00,000 barrels or 20% of the market wide open position, whichever is higher for all Crude
Oil contracts combined together.
Due Date Rate: Due date rate shall be the settlement price, in Indian rupees, of Due date rate shall be the settlement price, in Indian rupees, of
the New York Mercantile Exchange’s (NYMEX)# Crude Oil (CL) the New York Mercantile Exchange’s (NYMEX)# Crude Oil (CL)
front month contract on the last trading day of the MCX Crude front month contract on the last trading day of the MCX Crude
Oil contract. The last available RBI USDINR reference rate will be Oil Mini contract. The last available RBI USDINR reference rate
used for the conversion. The price so arrived will be rounded off will be used for the conversion. The price so arrived will be
to the nearest tick. rounded off to the nearest tick.
For example, on the day of expiry, if NYMEX Crude Oil (CL) front For example, on the day of expiry, if NYMEX Crude Oil (CL) front
month contract settlement price is $81.90 and the last available month contract settlement price is $81.90 and the last available
RBI USDINR reference rate is 80.4205, then DDR for MCX Crude RBI USDINR reference rate is 80.4205, then DDR for MCX Crude
oil contract would be `6,586 per barrel (i.e. $81.90 *80.4205 oil Mini contract would be `6,586 per barrel (i.e. $81.90
and rounded off to the nearest tick). *80.4205 and rounded off to the nearest tick).
Settlement Mechanism: The contract would be settled in cash
#A market division of Chicago Mercantile Exchange Inc. (“CME Group”)
Note: Please refer to the exchange circulars for latest contract specifications.
*a) For Latest Initial Margin refer circular No MCX/MCXCCL/133/2021 dated March 03, 2021.
b) The Margin Period of Risk (MPOR) shall be in accordance with SEBI Circular no. SEBI/HO/CDMRD/DRMP/CIR/P/2020/15 dated January 27, 2020. For applicable minimum MPOR, refer latest circulars issued by MCXCCL from time to time.
c) For all the applicable margins, refer the latest circulars issued by the Exchange or Multi Commodity Exchange Clearing Corporation Limited (MCXCCL) from time to time
 SALIENT FEATURES OF MCX CRUDE OIL AND CRUDE OIL MINI OPTIONS CONTRACT
Symbol CRUDEOIL CRUDEOILM
Underlying Underlying shall be Crude Oil Futures contract traded on MCX Underlying shall be Crude Oil Mini Futures contract traded on MCX
Description Option on Crude Oil Futures
Options type European Call & Put Options
Expiry Day (Last Trading Day) Two business days prior to the Expiry day of the underlying futures contract
Trading Period Monday through Friday - 9.00 a.m. to 11.30 / 11.55 p.m.# (#Based on US daylight saving time period.)
Trading Unit One MCX Crude Oil futures contract (100 BBL) One MCX Crude Oil Mini futures contract (10 BBL)
Underlying Quotation/ Rs. Per barrel
Base Value
Strikes 25 In-the-money, 25 Out-of-the-money and 1 Near-the money (51 CE and 51 PE). The Exchange, at its discretion, may introduce
additional strikes, if required.
Strike Price Intervals `50
Tick Size (Minimum Price `0.10 `0.05
Movement)
Daily Price Limit The upper and lower price band shall be determined based on statistical method using Black76 option pricing model and relaxed
considering the movement in the underlying futures contract. In the event of freezing of price ranges even without a corresponding
price relaxation in underlying futures, if deemed necessary, considering the volatility and other factors in the option contract, the
Daily Price Limit shall be relaxed by the Exchange.
Margins The Initial Margin shall be computed using SPAN (Standard Portfolio Analysis of Risk) software, which is a portfolio based margining
system. To begin with, the various risk parameters shall be as under:
A. Price Scan Range – 3.5 Standard Deviation (3.5 sigma)
B. Volatility Scan Range – Minimum 5% or as decided by MCXCCL from time to time. For applicable VSR refer latest circulars issued
by MCXCCL.
C. The Short Option Minimum Margin (SOMM) and Margin Period of Risk (MPOR) shall be in accordance with SEBI Circular no.
SEBI/HO/CDMRD/DRMP/CIR/P/2020/15 dated January 27, 2020. For applicable SOMM and MPOR refer latest circulars issued by
MCXCCL from time to time.
D. Extreme Loss Margin – Minimum 1% (to be levied only on short option positions)
E. Premium of buyer shall be blocked upfront on real time basis.
F. For Additional Margin refer latest circulars issued by MCXCCL from time to time.
Premium Premium of buyer shall be blocked upfront on real time basis.
Margining at client level Initial Margins shall be computed at the level of portfolio of individual clients comprising of the positions in futures and options
contracts on each commodity
Maximum Allowable Position limits for options would be separate from the position limits applicable on futures contracts.
Open Position For individual clients: 9,60,000 barrels or 5% of the market wide open position, whichever is higher for all Crude Oil Options
contracts combined together.
For a member collectively for all clients: 96,00,000 barrels or 20% of the market wide open position, whichever is higher for all Crude
Oil Options contracts combined together.
Upon expiry of the options contract, after devolvement of options position into corresponding futures positions, open positions may
exceed their permissible position limits applicable for future contracts. Such excess positions shall have to be reduced to the
permissible position limits of futures contracts within two trading days.
Exercise Mechanism at expiry All In the money (ITM)# option contracts shall be exercised automatically, unless ‘contrary instruction’ has been given by long
position holders of such contracts for not doing so.
The ITM option contract holders, who have not submitted contrary instructions, shall receive the difference between the Settlement
Price and Strike Price in Cash as per the settlement schedule.
In the event contrary instruction are given by ITM option position holders, the positions shall expire worthless.
All Out of the money (OTM) option contracts shall expire worthless.
All devolved futures positions shall be considered to be opened at the strike price of the exercised options.
All exercised contracts within an option series shall be assigned to short positions in that series in a fair and non-preferential manner.
#ITM for call option = Strike Price < Settlement Price | ITM for put option = Strike Price > Settlement Price
Due Date Rate Daily settlement price of underlying futures contract on the expiry day of options contract.
(Final Settlement Price)
Content by: PMT (Energy), MCX | Designed by: Graphics Team, MCX
1224

Multi Commodity Exchange of India Limited

Corporate address: Exchange Square, Chakala, Andheri (East), Mumbai - 400 093, India
Tel. No. 91-22-6731 8888 | [email protected] | www.mcxindia.com | CIN: L51909MH2002PLC135594
This leaflet is not intended as professional counsel or investment advice, and is not to be used as such. While the exchange has made every effort to assure the accuracy, correctness and reliability of the
information contained herein, any affirmation of fact in the leaflet shall not create an express or implied warranty that it is correct. This leaflet is made available on the condition that errors or omissions shall
not be made the basis for any claims, demands or cause of action. MCX shall also not be liable for any damage or loss of any kind, howsoever caused as a result (direct or indirect) of the use of the information or
data in this leaflet.
©MCX 2024. All rights reserved. No part of this document may be reproduced, or transmitted in any form, or by any means - electronic, mechanical, photocopying, recording, scanning, or otherwise - without
explicit prior permission of MCX.
Read the Risk Disclosure Document (RDD) carefully before transacting or investing in Commodity Derivatives Market