Gold Silver Reports — WILL RISING CRUDE HAVE AN IMPACT ON INDIA? — Crude oil looks set to rise roughly `300-odd per barrel from an intraday `3,277 on MCX rather than fall by a similar amount based on international crude price movements in the short term. Here, however, we are extrapolating the numbers based on Brent prices on Intercontinental Exchange rather than West Texas Intermediate, as Brent comprises almost 40% of India’s crude basket .
1. What makes a rise look possible?
Internationally, oil broke $50 late last week, rising over 20% to enter a bull market less than three weeks after having been in a bear market. The rise is on the back of informal talks to cap output between Saudi Arabia and Russia, two of the largest producers, next month in Algiers.
2. How are clients here betting?
On energy and metals exchange MCX in the past three days through Thursday , one witnessed the top 20 clients creating net long positions after been net short since July . The top-10 longs and 10 shorts account for a fourth of overall participation. Their change in net positions suggest that crude is likely to break higher than to fall as of now. However, sustained output by the likes of Iran could queer the pitch.
3. Is that good news?
Not necessarily for India, for whom oil is the high est imported item. A potential increase in oil prices can result in the headline retail inflation number staying above 6%, spelling hardships for many of India’ s poor and middle-class families and binding RBI’s hands from reducing the repo rate, which has come off by 150 basis points since January 2015. Higher imports than exports also pressures the rupee.
4. What risk does trading on oil futures pose?
Futures are an inherent ly risky instrument. At 3.28 lakh per contract (100 barrels) based on intraday price of `3,285 a barrel in September, one has to place a margin of approximately 5-7% or as much as `23,000. One tick equals one rupee. Assume oil falls by `20 to `3,265, an investor would lose `2,000 over a single session. Of the margin placed that equals almost 9%. A one tick move changes price by `100 at contract level. — Neal Bhai Reports