MUMBAI: Traders have piled into crude oil derivatives on the Multi Commodity Exchange (MCX) as the Iran-US war triggered sharp swings in global oil prices, pushing trading volumes to nearly three times pre-war levels.
Between 2 March and 9 March—the first six trading sessions after the conflict began on 28 February—the number of crude oil derivative contracts traded on MCX jumped 2.8x to 33 million compared with the six sessions before the war, according to exchange data.
The surge reflects a rush by traders to capitalize on heightened volatility in oil markets after supply disruptions linked to the conflict pushed crude prices sharply higher.
To account for contract expiry effects, activity was also compared with the same period last month—2 February and 9 February. Even on that basis, traded contracts in the sessions after the war were 1.2x higher, pointing to increased interest in crude oil derivatives.
Notional turnover for crude oil derivative contracts in the six trading sessions between 2 March and 9 March rose to ₹1.15 trillion, according to data from MCX, compared with ₹0.34 trillion in the six trading sessions before the war. Notional turnover refers to the underlying value of the contracts traded.
The sudden surge in crude prices over a short span has increased volatility, attracting traders to crude oil derivatives, said Sunil Katke, head of commodities retail business at Kotak Securities.
“Daily price swings in crude oil have jumped from about 1–2% earlier to as much as 7–10%, making the contract more attractive for derivatives traders, especially option buyers who benefit from volatile markets,” Katke added.
“We have seen the client participation in crude derivatives increase by about 15–20% compared with pre-war levels,” Katke said.
Behind the surge
Supply disruptions linked to the conflict have pushed crude prices sharply higher. The Brent crude settled around $89.44 a barrel on Monday, after briefly surging to as high as $116.33 during the day. This was closer to the highest level for Brent crude since 27 May 2022 when oil traded at $119.72 per barrel in the wake of the Ukraine war.
Prices slipped to around $90 per barrel in Tuesday's trade after US President Donald Trump said the war will be over “pretty quickly”.
The price spike comes as several West Asian producers have reduced output following recent drone attacks amid the Iran war. The region accounts for nearly 30% of global oil output.
Shipping through the Strait of Hormuz has also been suspended, forcing Persian Gulf producers to store stranded crude in onshore tanks. The strait connects the Persian Gulf to the Arabian Sea and carries a fifth of global oil, gas and fertilizer shipments.
When crude prices were moving in a narrow range, option writers benefited. But as prices began moving strongly in one direction, option buyers have also entered the market, said Navneet Damani, head of research Commodities at Motilal Oswal Financial Services Ltd.
Option writers or sellers benefit when the market is in a sideways trend while option buyers benefit when the market is either moving up or declining.
Volatility in crude oil is likely to persist until geopolitical tensions in West Asia stabilize, keeping trader interest and participation high, Motilal Oswal said.