How Is Crude Oil Trading Done? How To Trade in Crude Oil MCX?

Besides gold, another highly volatile and unpredictable commodity in trading is the 'commodities trading superstar'—Crude Oil. With a daily futures contract value exceeding Rs. 3,000 crores on MCX as of 2023, making it the most actively traded commodities contract in India, approximately 8,500 barrels of crude oil are traded daily. Despite its substantial profit potential, many retail investors shy away from crude oil trading due to its inherent high risks. In this guide, we aim to demystify the basics of crude oil trading and unveil the most effective crude oil intraday trading strategy in India to empower investors.

Basics Of Crude Oil Trading in India

On MCX, crude oil is priced per barrel, with essential contract details as follows:

Price Quote: Per barrel

1 Barrel: 159 litres

Crude oil options Lot Size: 100 barrels

Tick Size: Rs.1 (The minimum price change between bid and offer prices)

Profit & Loss per Tick: Rs.100

Contract Duration: 6 months

Expiry: 19/20th of every month

Delivery Units: 50,000 barrels

Physical Delivery: Mumbai / JNPT Port

Consult the Enrich Money for report on commodity futures prices and the expiry dates for each commodity.

Key Characteristics of the Crude Oil Market 

Crude oil, known for its high volatility, exhibits more prolonged trending movements compared to other commodities. However, apart from companies like BPCL, ONGC, and IOC, crude oil trading is predominantly speculative rather than delivery-oriented. Before actively engaging in crude oil trading, it is essential to familiarize yourself with the various factors influencing price fluctuations in crude oil derivatives:

• Crude Oil Supply and Demand: The price of crude oil is often governed by the principles of supply and demand. Storage capacity, production costs, and interest rates contribute to movements in crude oil prices, with prices increasing during oversupply with consistent demand.

• OPEC Announcements: OPEC, comprising major global oil-producing nations, can impact crude oil prices through certain announcements, leading to short-term changes.

• Political Turmoil and Natural Disasters: Political instability or natural disasters in significant oil-producing regions, such as the Middle East, can affect pricing and supply routes.

• The Value of the US Dollar: Given the substantial role of the US in global oil trading, the value of the US dollar significantly influences crude oil prices

What Are the Direct Methods of Trading Crude Oil?

Own crude oil: You can invest in crude oil by purchasing oil futures or options. They differ primarily in buyer and seller contracts and the obligations of either party. Futures are highly volatile. A reasonable amount of research and significant capital investment is required.

Purchase oil exchange-traded funds (ETFs): The commodity-based oil traded funds or oil ETFs trade on the stock exchange and can be bought or sold like stocks. The exposure to crude oil would depend on the amount of money one invests. For instance, it could be as little as one share in a crude oil fund, which would interpret as the percentage ownership of a barrel of oil.

What Are the Indirect Methods of Trading Crude Oil?

This involves buying energy-sector ETFs or energy-related mutual funds. These financial instruments are energy-specific, which means they invest only in the stocks of oil and oil service companies. Lower risk is involved in this process.

How Crude Oil Trading Operates?

The oil trading market comprises two major components: Brent Crude Oil and West Texas Intermediate. Due to its non-renewable nature, crude oil is susceptible to supply and demand influences, resulting in substantial price fluctuations. These dynamics create a volatile trading environment favoured by many traders. Within the Brent or WTI categories, various individual oil products are available for trading, such as oil futures market CFDs and the spot oil market. Each product carries unique features and risks that traders must comprehend before making investments. A solid understanding of oil market dynamics is essential for traders to formulate effective strategies for profitable trading

How To Trade in Crude Oil in India?

To trade in crude oil, first the trader needs a trading account. Enrich Money provides free trading and demat account for traders to trade and seamless access. Next, decide on the type of crude oil trading. Crude oil can be traded at spot price or as oil futures or as crudeoil option chain in Enrich Money platform.

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In the crude oil spot market, immediate delivery demand is lower than that for future delivery due to the complexities of oil transportation, leading investors to prefer future contracts. These contracts are more prevalent among both investors and end-users. When entering a commodity futures contract, traders commit to buying or selling a specific quantity of crude oil on a predetermined date, with transaction costs predetermined.

Let's illustrate energy commodity trading with two examples:

Example 1: Hedging or Risk Management Commodity trading, such as selling crude oil barrels at Rs 500 per barrel, can expose traders to potential losses if market fluctuations lower prices. To mitigate this risk, creating a futures contract with a buyer at a fixed price ensures protection against sudden price changes—a strategy known as hedging.

Example 2: Bullish Market Speculation Consider a trader anticipating a bullish crude oil market where prices are expected to rise. A single crude oil contract, priced at Rs 2500 per barrel, requires only a 5% margin of Rs 12,500 instead of the full amount. If the oil price increases to Rs 2600 per barrel, the trader earns a profit of Rs 100 per barrel, resulting in a total profit of Rs 10,000 despite the initial investment of Rs 12,500. The high leverage available in crude oil trading through future contracts allows for potential profits even in a bearish market scenario.

MCX Crude Oil Contracts

MCX offers various types of crude oil contracts, including:

• Crude Oil (Main): Priced per barrel, the lot size comprises 100 barrels.

• Crude Oil (Mini): Also quoted per barrel, the lot size is smaller, featuring 10 barrels. The reduced lot size of crude oil mini translates to a lower required margin, making it a more favoured choice among investors.

Crude Oil Trading Tips

Knowing crude oil contracts, the exchanges that deal with these futures trading, and aspects that affect the prices.

Risk management through hedging or other approaches can be very helpful for traders. The method for managing risk can be valuable to all stakeholders. There are several sources on to base one’s investment in crude oil. For instance, if you are looking for intraday trading, the MCX crude oil tips, updated in real-time, can be useful indicators to settle on hold, buy and sell. Volumes, the strength of trends, and identifying the current joining crowd are of massive importance. Understanding the trend and related charts is of immense significance. Learning what drives this commodity, its long-term price history, and the various physical grade differences will help investors who wish to trade oil futures. Trader can get best crude oil tips from SEBI registered crude oil tips provider like Enrich Money through opening a free commodity trading account.

Frequently Asked Questions

How To Trade Crude Oil Options in India?

For crude oil options trading in India, open a trading account with a broker offering options trading, such as Enrich Money. Select the desired crude oil option contract, analyze market trends, and execute buy or sell orders through the 24 hours trading platform ORCA.

How Much Capital Required for Crude Oil Trading in India?

The amount of capital required for crude oil trading in India varies based on factors such as the trading strategy, risk tolerance, and the broker's margin requirements. It's crucial to consider risk management and only trade with capital that you can afford to lose.

How To Trade Crude Oil Online?

To trade crude oil online, open a free account with an online crude oil 

trading platform like Enrich Money, deposit funds, and access the crude oil market. Analyze price trends, use technical indicators, and execute buy or sell orders through the platform to participate in online crude oil trading.

Is Commodity Trading in Oil Suitable for Retail Investors? 

Commodity trading in oil is accessible to retail investors with a low initial investment and the potential for substantial profits due to high leverage. However, given the high volatility and liquidity of crude oil futures, accurate price forecasting is challenging. Beginners are advised to seek guidance initially and gradually transition to independent trading.

How can I manage risk in crude oil trading?

Risk management strategies include setting stop-loss orders, diversifying your portfolio, and avoiding excessive leverage. It's crucial to have a clear risk-reward strategy before entering trades.