Crude futures offer arbitrage opportunity
The launch of both WTI and Brent Crude Oil futures on DGCX makes the world’s two most significant crude oil benchmarks available to both regional and international market participants.
By TNN |
NEW DELHI: There may be opportunity for netting more profits in crude oil futures. Indian companies, with an arm in Dubai, can now keep an eye open for arbitrage between Mumbai-based MCX and Dubai Gold and Commodities Exchange (DGCX), the top exchange in the Middle East.
DGCX on Tuesday launched cash-settled West Texas Intermediate light sweet crude oil and Brent crude oil futures contracts. Both contracts appear to be a runaway hit with local punters as DGCX recorded its highest first-day volumes exceeding $370 million.
Crude is also the most popular contract on MCX. More than 29,000 lots of the June contract were traded today, with the gold June contract a distant second at 18,533 lots. Indian companies that are trading on MCX and have a subsidiary that trades on DGCX can use the slight price difference in crude oil contracts on the two exchanges, which is created largely by the dollar-rupee exchange rate, to make risk-free profits at the end of day.
DGCX on Tuesday launched cash-settled West Texas Intermediate light sweet crude oil and Brent crude oil futures contracts. Both contracts appear to be a runaway hit with local punters as DGCX recorded its highest first-day volumes exceeding $370 million.
Crude is also the most popular contract on MCX. More than 29,000 lots of the June contract were traded today, with the gold June contract a distant second at 18,533 lots. Indian companies that are trading on MCX and have a subsidiary that trades on DGCX can use the slight price difference in crude oil contracts on the two exchanges, which is created largely by the dollar-rupee exchange rate, to make risk-free profits at the end of day.
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���Both the exchanges will use the same New York price to settle their contracts. So a company can buy the contract where it is relatively underpriced and sell immediately in the other market. The profit will be booked by either the Indian company or its Dubai subsidiary. Unlike normal speculation, arbitrage is a financial transaction which gives immediate profit without involving any risk,������ said an Indian broker in Dubai.
Meanwhile, DGCX officials told ET, the two contracts contributed more than 45% of the exchange���s daily volume on the first day of trading. ���Opening day trade surpassed all previous DGCX records with over 2,800 contracts traded on WTI and Brent, outshining silver futures��� first day volumes of 1,158 contracts in March 2006,������ they said.
The launch of both WTI and Brent Crude Oil futures on DGCX makes the world���s two most significant crude oil benchmarks available to both regional and international market participants, allowing them to benefit from trading and clearing transactions under the UAE regulatory and taxation regimes, they added.
Malcolm Wall Morris, CEO of DGCX, said: ���DGCX���s first day trading volumes further confirm the market���s demand for direct access to the world���s most liquid energy futures contracts. Since inception, DGCX has endeavoured to innovate and create risk management tools. The launch of WTI and Brent crude oil futures suitably illustrates this strategy.���
Each DGCX crude oil futures contract is sized at 1,000 barrels, with the contract price quoted in US dollars and cents per barrel.
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The minimum price fluctuation is one cent per barrel, equivalent to a tick value of $10.00. Light, sweet crude are preferred by refiners because of their low sulphur content and relatively high yields of high-value products such as gasoline, diesel fuel, heating oil, and jet fuel. WTI, also known as Texas Light Sweet, is a type of light crude, lighter and sweeter than Brent Crude. Its properties and production site makes it ideal for being refined in the United States, mostly in the Midwest and Gulf Coast regions.
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