Crude Oil and Natural Gas Trading in India

Personal Finance

Crude oil is one of the most traded commodities, not just in India, but around the world. Oil prices feature in global headlines regularly due to various reasons. It is the most watched commodity across the world as well.

Natural gas, on the other hand, is another important energy product traded widely in the United States and Northern Europe. Several things affect how the price of natural gas moves, and it’s also interesting to watch.

Are you interested in learning about crude oil trading in India and natural gas trading in India? We will provide you with a complete understanding of these.

Keep reading!

What is Crude Oil?

Let us start with the basics and understand what crude oil is.

Crude oil is a petroleum fossil fuel found beneath the earth. It is extracted and refined into usable products such as gasoline, liquefied petroleum gases, and diesel, which are then used to power machines such as automobiles, airplanes, and industrial machinery. Crude oil is also used as a raw material for the petrochemical industry.

What is Natural Gas?

A mixture of gases (nitrogen, methane, carbon dioxide, etc.) rich in hydrocarbons is natural gas. Natural gas is found deep inside the earth near other fossil fuels such as coal or crude oil. It is another popular commodity traded across the world.

What is Crude Oil Trading?

Being the primary source of energy, crude oil is the most traded commodity in the world as well as in India. The crude oil market is characterized by extensive price fluctuations. Investing in crude oil offers excellent opportunities to make a profit in nearly all market conditions.

You can trade it in both the spot market and the derivative market. 

Spot crude oil trading: Spot trading of crude oil can be considered similar to buying an item from the grocery store. You go to the grocer, purchase the item, and pay him on the spot. To put it simply, spot trading in crude oil works in a similar manner. It is the price paid for taking delivery of physical barrels of crude oil.

Of course, this is a very simplified explanation of the spot market. You will be able to understand the entire market dynamics when you trade oil on the spot market.

Crude oil trading in the derivative market: The more popular of the two is the option of investing in crude oil via derivative contracts such as futures and options. Crude oil trading in India is done via futures and options contracts.

Crude oil is traded in India in smaller contract sizes (100 barrels) than global benchmarks. These contracts are settled in cash, and no physical delivery of crude oil takes place. This eliminates several logistical challenges and headaches.

Crude Oil Trading in India

You can trade crude oil at the Multi-Commodity Exchange, or MCX, the commodity exchange of India. Crude oil is traded in India through futures and options contracts.

Mainly, two crude oil trading contracts are available on the MCX:

1. Crude oil (the main contract)

2. Crude oil mini (the smaller version).

You should check the MCX ‘Bhav Copy’ to get a clearer picture of the contracts being traded at a particular time.

  1. Crude oil contract

The main contract for crude oil has a daily traded value of 2500 crores. The contact details are as follows:

Price quote – per barrel

Lot size – 100 barrels

Tick size – ₹1/-

Profit and loss per tick – ₹100/-

Delivery units – ₹50,000 barrels

Expiry – 19th & 20th of every month

Due to their large size, these contracts are popular among institutional investors and corporations.

  1. Crude oil mini

The crude oil mini is favored by the retail trading community. So if you are interested in investing in crude oil, this is the contract to look at. The margins are smaller, and the profit and loss per tick are also much smaller.

Here are the details of the contracts:

Price quote – per barrel

Lot size – 10 barrels

Tick size – ₹1/-

Profit and loss per tick – ₹10/-

Expiry – 19th & 20th of every month

What is Natural Gas Trading?

Like crude oil, natural gas is also traded as a commodity worldwide, including in India. You can speculate on natural gas prices by purchasing derivative contracts such as futures contracts. In India, natural gas is also traded on MCX, similar to crude oil.

Natural Gas Trading in India

For natural gas trading, you can open an account with a reputable broker and buy or sell natural gas contracts available on the exchange.

The specifications of the contracts are as follows:

Price quote: Rupee per Million British Thermal Unit (mmBtu)

Lot size – 1250 mmBtu

Tick size – ₹ 0.10

Profit and loss per tick – ₹125/-

Expiry – 25th of every month

Benefits of Crude Oil and Natural Gas Trading via Futures and Options

Now let us come to a pertinent point – why should you trade crude oil via futures and options?

Here are the three reasons to do so:

1. We all know oil prices fluctuate a lot. This can present difficulties in trading and an immense amount of risk. Futures and options provide you with better chances to make a profit while managing the level of risk.

2. You can take advantage of margin while trading crude oil and natural gas through derivatives. This means that with less cash, you can open larger positions by using the margin from your broker. Thus, your chances of making a profit increase manifold.

3. Although the world is talking about going green and moving away from fossil fuels, it has still not happened. Crude oil and natural gas are still the most traded commodities across the world, providing immense money-making opportunities. Derivative contracts help you take advantage of such opportunities.

Commodity trading, in general, provides fascinating opportunities. But it works differently from other financial instruments, such as shares. It will be good for you to conduct thorough research before you dive into the markets. This will help you balance your risk and reward.

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