Page 4 - AsianOil Week 20

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WTI’s collapse has sparked Indian law suits
PERFORMANCE
INTERNATIONAL oil prices have managed to regain some of their lost ground in recent weeks, setting a new high at the start of this week. Brent crude reached a five-week high of $34.40 per barrel on May 18, while West Texas Intermedi- ate (WTI) marked an eight-week high of $31.80 per barrel.
While prices have been supported by produc- tion cuts as well as some countries’ efforts to ease their quarantine restrictions, the extent of the fallout from months of market volatility is still unfolding.
Indian daily Mint reported late last week that three of India’s High Courts were hearing five cases related to the settlement of crude oil con- tracts in April at negative rates. The Multi-Com- modity Exchange’s (MCX) inability to account for negative pricing, coupled with its move to cut trade and settlement hours to 9am-5pm in April owing to the country’s coronavirus (COVID-19) lockdown, is at the heart of the cases.
The MCX settles its contracts in cash on a monthly basis, with the final settlement price of such contracts pegged to New York Mercan- tile Exchange (NYMEX) futures. On April 20, WTI crude futures for May delivery plummeted 305% to settle at -$37.63 compared with $18.27 on April 17 – the previous day of trading, as April 20 fell on a Monday. The rapid collapse was pri- marily attributed to the mechanics of futures contracts as the May contract came up for expiry on April 21.
Brokerage firms Motilal Oswal Financial Services, Religare Securities and PCS Securities have brought a joint case before the Bombay High Court against the MCX and Securities and Exchange Board of India (SEBI). They are seek- ing a ruling on whether commodity exchanges in India have a “provision to trade commodities/ stock by assigning a negative value to it”. Another issue is the fact that when WTI prices plunged
into the negative zone, traders found their soft- ware was unable to use negative values to calcu- late risk and margins for futures contracts.
The Bombay High Court also heard financial services firm Motilal Oswal’s plea against its cli- ent Dhanera Diamonds on May 15. The brok- ing house is seeking INR807.4mn ($10.7mn) in unsettled crude trading obligations.
“The trader had a position of INR200mn [$2.6mn]; however, negative settlement price caused it a loss of nearly INR1.3bn [$17.2mn]. Motilal had INR560mn [$7.4mn] of the cli- ent’s money as margin. The MCX deducted the required payouts from the brokerage’s account. However, Dhanera Diamonds refused to set- tle its liability towards the brokerage firm for the outstanding dues. The interim relief being soughtistosecurethesumpendingarbitration,” the Mint quoted an unnamed source as saying.
Dhanera Diamonds has filed a counter plea against Motilal Oswal and the MCX demanding the return of the funds that have already been deducted, claiming the absence of a provision for negative trading raised questions over whether the contracts should have been settled.
Broker Ganganagar Commodity has filed a similar complaint against the MCX with the Rajasthan High Court, while a fifth unspecified case is before the Delhi High Court.™
CIL seeks development partners for two CBM blocks
PROJECTS & COMPANIES
STATE-RUN Coal India Ltd (CIL) has invited bids for two coal-bed methane (CBM) developments, opening the acreages to local and international players CIL is looking to sign revenue-sharing agreements
for the blocks, which are expected to require more than $325mn worth of investment. Adani, Essar and Reliance Industries Ltd (RIL) have reportedly participated in a pre- bid meeting.
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w w w . N E W S B A S E . c o m Week 20 21•May•2020