InvestorQ : Why exactly did MCX get hit by a crash in US oil futures?
Arya Nanda made post

Why exactly did MCX get hit by a crash in US oil futures?

Answer
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Deepa Salunkhe answered.
5 months ago


It happened on the evening of 20th April when the WTI oil futures contract dipped to a low of $-37.66/bbl due to a sharp demand drop. The shortage of storage in the US also took the US crude into negative. This also created a very embarrassing situation for the oil traders on the MCX. This is what actually happened for MCX crude oil traders. Crude oil futures on the MCX are one of the most actively traded commodities and price of crude is benchmarked to NYMEX crude (WTI). The MCX preferred the WTI futures because it was futures for delivery whereas the Brent Crude was futures for cash settlement. Hence, WTI was better aligned to spot prices. Crude contracts on MCX were meant for cash delivery only. When trading closed at 5.30 pm on 20th April, the MCX Clearing Corporation fixed the settlement price at Rs.1 resulting in an overall loss of Rs.110 crore on the 11,600 contracts of open interest. However, by the close of US trading, crude had closed at $37.66 and MCX had to eventually modify the settlement price at Rs.(-2884) per barrel. This resulted in a total loss of Rs.442 crore; an additional loss of Rs.332 crore over the original figure.