Re 1 per barrel! MCX revises crude oil price after US rate drops below $0

Re 1 per barrel! MCX revises crude oil price after US rate drops below $0

The contract for West Texas intermediate crude (WTI), the benchmark for US oil rates, fell below the $0-a-barrel level on April 20.

MCX relies on the NYMEX exchange for pricing the crude oil contracts

Multi Commodity Exchange (MCX) has fixed the interim settlement price of April crude oil futures contract at Re 1 per barrel after the US oil futures turned negative on Monday. The move is to arrest large-scale defaults amid falling oil prices in the US, MCX said in a circular. "Due to the unprecedented price fluctuation in the international markets in crude oil, the due date rate for crude oil futures contract expiring on April 20, 2020 is under finalisation. In the interim, the provisional settlement price for April 20, 2020 is considered as Re 1 per barrel for the computation of members' obligation for trade date April 20, 2020. The differential settlement, if any, on fixation of the final settlement price shall be done subsequently," MCX said in a circular issued on Monday.

The contract for West Texas intermediate crude (WTI), the benchmark for US oil rates, fell below the $0-a-barrel level on April 20. The May crude futures ended at minus $37.63 a barrel, registering a 306 per cent daily fall. 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. On April 10, the storage at Cushing, Oklahoma, the hub of the US pipeline network, was nearly 72 per cent full, according to the US Energy Information Administration.

"One could definitely see the further drop in oil prices coming. With the global economy in a complete standstill there is no demand for new oil. Even with the cut in supply from the oil producing countries, we are still in an over supply world. The transportation cost of shipping oil has gone up 3x since March 2020 and what has happened now in fact is that sellers are paying buyers to take their oil because the world is running out of places to store oil. The world economy needs to restart very soon to be able to support oil producers. For oil importing countries like India this scenario might be an opportunity to improve its oil reserves." Viram Shah, CEO and Co-Founder, Vested Finance, said.