Crude Oil

Multi Commodity Exchange of India Ltd. (MCX) is an independent and de-mutualized exchange with permanent recognition
from the Government of India. MCX offers futures trading in over 65 commodities including key segments such as bullion,
energy, grains, plastics, metals, oil and oilseed, fibers, spices, pulses, sugar, and plantations. With over 72% domestic
market share, MCX has an average daily turnover of US $2.15 billion.

INTRODUCTION
= Crude oil is a mixture of hydrocarbons that exists in a liquid form in natural underground reservoirs.
= Crude oil accounts for 40% of the world's primary energy consumption.
= All industries are directly or indirectly dependent on derivatives from crude oil. Its price movements
largely and directly affect prices of lubricants, petrochemicals, fertilizers, paints, transportation costs,
etc.
= Aviation and motor gasoline, naphtha, kerosene, jet fuel, distillate fuel oil, residual fuel oil, liquefied
petroleum gas, lubricants, paraffin wax, petroleum coke, asphalt, and other products are obtained from
the processing of crude and other hydrocarbon compounds.
= The prices of crude are highly volatile. High oil prices lead to inflation which in turn increases input costs,
reducing non-oil demand and reduces investment in net oil importing countries.

MCX Crude Oil Price and Volume

3800 10000
3600 9000

Volume (in '000 barrels)

Closing price (in Rs. per barrel)

3400 8000
3200 7000
6000
3000
5000
2800
4000
With a growing 2600
3000
market share of 2400 2000
2200 1000
72%, MCX 2000 0
1/9/2007
2/9/2005
3/9/2005
4/9/2005
5/9/2005
6/9/2005
7/9/2005
8/9/2005
9/9/2005
10/9/2005
11/9/2005
12/9/2005
1/9/2006
2/9/2006
3/9/2006
4/9/2006
5/9/2006
6/9/2006
7/9/2006
8/9/2006
9/9/2006
10/9/2006
11/9/2006
12/9/2006

continues to be
India's No. 1
commodity Period
Volume (in '000 barrels) MCX closing price
exchange. Source: MCX

VARIETIES
Two factors that determine the market value of a specific grade of crude oil are density (measured in API
gravity) and the sulfur content, respectively, giving how light and sweet the crude oil is.

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 A) West Texas Intermediate
A high–quality crude oil explored and physically traded in the US, West Texas Intermediate is one of the
largest traded commodities in the world. Its crude oil API gravity is between 37 and 42 degrees and has
0.24% sulphur content. New York Mercantile Exchange (NYMEX) is the primary exchange facilitating
futures trade in this light sweet crude oil.

B) Brent Crude Oil

A grade from the North Sea, UK, Brent is a pricing benchmark for crude from the Europe and Africa. With
API 39 degree and 0.4% or less sulphur content by weight, Brent is the second most traded variety of
crude in the world.

C) Middle East Crude Oil

= Generally taken as the arithmetic average of Dubai and Oman crude grades, API gravity b et we e n 31
and 37 degrees and 2.05% or less sulphur content by weight makes Middle East Crude Oil a heavy
and sour crude oil.
= It is a variety with a very large physical market in the Gulf region. Most of the Indian refineries use
crude benchmarked against Middle East Sour Crude Oil.
= TOCOM is a prominent futures trading platform to trade in this grade.

Global Benchmark Prices

78
68
Price (In US $/Barrel)

Globally, MCX 58

ranks No. 1 in 48
38
silver, No. 2 in
28
natural gas, and 18

No. 3 in crude 8
Jan-97
Jan-92

Jan-02
Jan-95

Jan-05
Jan-93

Jan-99

Jan-03
Jan-96

Jan-00

Jan-06
Jan-94

Jan-04
Jan-98
Jan-91

Jan-01

oil and gold in

futures trading. Period

Dubai Fateh Bonney Light WTIC Cushing

Dated Brent Arab Medium Kuwait

Source: Bloomberg

MEASUREMENT (AVERAGE GRAVITY)

1 US barrel = 42 US gallons
1 US barrel = 158.98 liters
1 tonne = 7.33 barrels
Note: The measurement of barrels per tonne vary from origin to origin.

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 GLOBAL SCENARIO
= Crude oil accounted for 37% of the world primary energy consumption.
= United States (20.6 MBPD), followed by China (6.9 MBPD) and Japan (5.3 MBPD) are the top oil
consuming countries of the world.
= Proved oil reserves for the world stand at 1200 billion bbl at the end of the year 2005 of which OPEC
has 902 billion bbl.
= World demand supply balance: Incremental demand for crude oil directly relate to world GDP growth.

Primary Sources of Energy

Nuclear energy Hydro electric

6% 6%
Oil
37%

Coal
28%

Natural Gas
23%

Source: BP Statistical Table

Production and Consumption of Crude Oil

84.0
82.0
MCX has 10 80.0

strategic 78.0
76.0
alliances with 74.0
leading 72.0

commodity 70.0
2000 2001 2002 2003 2004 2005
exchanges Year

across the globe. Consumption Production

Source: BP Statistical Table

Demand and GDP Growth

3.5 5
Demand rise (in MBPD)

2.8 4
GDP growth (%)

2.1 3

1.4 2

0.7 1

0.0 0
2002
1992

2000

2006
2004
1986

1990

1996
1988

1998
1994

Year
© MCX Incremental demand rise GDP growth

www.mcxindia.com Source: Bloomberg

 OPEC OVERVIEW
The Organization of Petroleum Exporting Countries (OPEC) was founded in Baghdad, Iraq, in September
1960, to unify and coordinate members' petroleum policies. It is an organization of eleven developing
countries that are heavily dependent on oil revenues as their main source of income. The current members
are Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and
Venezuela. OPEC controls almost 40% of the world's crude oil. It accounts for about 75% of the world's
proven oil reserves. Its exports represent 55% of the oil traded internationally.

OPEC Quota System for Its Member Countries

10.0
9.1
Quota (in MBPD)

8.0

6.0
4.1
4.0 3.2
2.4 2.2 2.3
2.0 1.5 1.5
0.9 0.7
0
0.0
a

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Country

Source: Bloomberg
* Iraq does not have a quota.

INDIAN SCENARIO
= India ranks amongst the top 10 oil consuming countries.
The average = Oil accounts for about 30% of India's total energy consumption. The total oil consumption is about 2.5
MBPD. India imports about 70% of its total oil consumption and has no oil exports.
daily turnover of = India faces a large supply deficit, as domestic oil production is unlikely to keep pace with demand. India's
MCX is about production in 2005 was 0.8 MBPD.
= Proved oil reserves of India (about 5.9 billion barrels) are located primarily in Mumbai High, Upper
US $2.15 billion. Assam, Cambay, Krishna–Godavari, and Cauvery basins.
= India has a total of 2.5 MBPD in refining capacity.

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 INDIAN REFINERIES
= IOCL (Mathura, Panipat, Barauni, etc.)
= BPCL (Mumbai)
= HPCL (Vizag, Mumbai)
= CPCL (Manali and Narimanam)
= MRPL (Mangalore)
= BRPL (Assam)
= RPL (Jamnagar)
= NRL (Numaligarh)
= KRL (Cochin)
= IOCL is the largest refinery company in India. RPL, Jamnagar, refinery is the largest refinery in India and
the third largest in the world.
= The Government of India has permitted foreign participation in oil exploration, an activity restricted earlier
to state owned entities.
= Even after officially dismantling Administered Price Mechanism (APM), the product prices continue to be
policy driven rather than market driven.
= The petroleum refining and marketing sector is undergoing a huge restructuring with influx of foreign
direct investments thus facilitating more efficient markets in times to come.

PRICE MOVING FACTORS

= OPEC output, supply and spare capacities
= Currency fluctuations
= US crude and products inventories data
= Increased demand from developing countries, geopolitics
MCX now = Weather conditions

reaches out to = Speculative buying and selling

about 500 cities EXCHANGES FACILITATING CRUDE OIL FUTURES

in India with the = ICE
= MCX
help of about = NYMEX
10,000 trading = TOCOM

terminals.
IMPORTANT WEB SITES
= www.eia.doe.gov
= www.opec.org
= www.nymex.com
= www.bloomberg.com
= www.futuresource.com

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 CONTRACT SPECIFICATIONS OF CRUDE OIL

SYMBOL CRUDEOIL
Description CRUDEOIL MMMYY
No. of contracts a year 12
Contract duration 3 months
TRADING
Trading period Monday through Saturday
Trading session Monday to Friday: 10.00 a.m. to 11.30 p.m.
Saturday: 10.00 a.m. to 2.00 p.m.
Trading unit 100 barrels
Maximum order size 10,000 barrels
Tick size (minimum Rs. 1
price movement)
Daily price limits 4%
Price quote Rs. per barrel, ex-Mumbai (excluding all taxes, levies,
and other expenditure)
Initial margin 5%
Special margin In case of additional volatility, a special margin (as
deemed fit) will be imposed immediately on both the
buy–side and the sell–side in respect of all
outstanding position, which will remain in force for
the next two days. After which, the special margin will
be relaxed.
Maximum allowable For individual clients: 4,00,000 barrels
open position For a member collectively for all clients: 12,00,000
barrels or 15% of the open market position,
whichever is higher
MCX COMDEX is
DELIVERY
India's first and
Delivery unit 50,000 barrels with +/- 2% tolerance limit
only composite Delivery center(s) Port installation at Mumbai/JNPT
commodity
futures price QUALITY SPECIFICATIONS
index. Light Sweet Crude Oil confirming to the following quality specifications is deliverable:
= Sulphur: 0.42% by weight or less
= API gravity: Between 37 degree and 42 degree
All volumes are defined at 60 degree Fahrenheit.

Note: Please refer to the exchange circulars for the latest contract specifications and delivery and
settlement procedures.

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 CONTRACT SPECIFICATIONS OF BRENT CRUDE OIL

SYMBOL BRENT CRUDEOIL

Description BRENTCRUDE MMMYY
No. of contracts a year 12
Contract duration 3 months
TRADING
Trading period Monday through Saturday
Trading session Monday to Friday: 10.00 a.m. to 11.30 p.m.
Saturday: 10.00 a.m. to 2.00 p.m.
Trading unit 100 barrels
Maximum order size 10,000 barrels
Tick size (minimum Rs. 1
price movement)
Daily price limits 4%
Price quote Rs. per barrel, ex-Mumbai (excluding all taxes, levies,
and other expenditure)
Initial margin 5%
Special margin In case of additional volatility, a special margin (as
deemed fit) will be imposed immediately on both the
buy-side and the sell-side in respect of all outstanding
position, which will remain in force for the next two
days. After which, the special margin will be relaxed.
Maximum allowable For individual clients: 150,000 barrels
open position For a member collectively for all clients: 600,000
barrels or 20% of the total market position, whichever
is higher
MCX derives its DELIVERY

key strength Delivery unit 50,000 barrels with +/– 2% tolerance limit
Delivery center(s) Port installation at Mumbai/JNPT
from its user-
friendly platform
QUALITY SPECIFICATIONS
and best market Brent Blend confirming to the following quality specifications is deliverable:
practices. = Sulphur: 0.4% by weight or less
= API gravity: Between 38 degree and 39 degree
All volumes are defined at 60 degree Fahrenheit.

Note: Please refer to the exchange circulars for the latest contract specifications and delivery and
settlement procedures.

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 CONTRACT SPECIFICATIONS OF MIDDLE EAST SOUR CRUDE OIL

Symbol MECRUDE
Description MECRUDE MMMYY
No. of contracts a year 12
Contract duration 3 months
TRADING
Trading period Monday through Saturday
Trading session Monday to Friday: 10.00 a.m. to 11.30 p.m.
Saturday: 10.00 a.m. to 2.00 p.m.
Trading unit 100 barrels
Maximum order size 10,000 barrels
Tick size (minimum 50 paise
price movement)
Daily price limits 4%
Price quote Rs. per barrel, ex-Mumbai (excluding all taxes, levies,
and other expenditure)
Initial margin 5%
Basis price Simple arithmetic average of Dubai and Oman Crude
MCX offers Initial margin 5%

diversified Special margin In case of additional volatility, a special margin (as

deemed fit) will be imposed immediately on both the
portfolio of buy side and the sell side in respect of all outstanding
position, which will remain in force for the next two
commodities on days. After which, the special margin will be relaxed.
Maximum allowable For individual clients: 100000 barrels
its platform. Open Position For a member collectively for all clients: 25% of the
open market position
Delivery
Delivery unit 50,000 barrels with +/- 2% tolerance limit
Delivery center(s) Port installation at Mumbai/JNPT

Middle East Sour Crude Oil either of Dubai or Oman origin with the following specifications
= Sulphur: 2.05 % by weight or less
= API gravity: Between 31-37%
All volumes are defined at 60 degree Fahrenheit.

Note: Please refer to the exchange circulars for the latest contract specifications and delivery and
settlement procedures.

© MCX

www.mcxindia.com
05/2007

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