China launches crude oil futures

China launches crude oil futures

Two of the world's biggest oil traders gave China's crude futures contract a go on its long-anticipated trading debut.

Chinese commodity futures investors do not typically trade steadily over the months, but instead pick specific months in which they deal.

The world's biggest oil buyer is offering yuan-denominated futures that foreigners can buy and sell - a first in Chinese commodities.

The possibility of a full-blown trade war between the United States and China battered Asian shares on Monday. Its demand is already a key determinant of global oil prices. "I still think there is a general reluctance from global investors to trade Chinese-based contracts".

Shanghai crude oil futures opened up more than six per cent on Monday with nearly 20 million barrels of the most-active September contract changing hands. West Texas Intermediate (WTI) futures slipped 6 cents to US$65.49, after touching US$66.41. James Mick, MD and energy portfolio manager at management firm Tortoise, said that "rising geopolitical tensions" were driving up oil prices. That initially eclipsed volumes traded in the Brent May contract, before Europe's benchmark came alive around 05.00 GMT.

Futures contracts fix prices today for delivery at a later date.

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U.S. oil production has already jumped by nearly a quarter since mid-2016, to 10.4-million barrels a day, taking it past top exporter Saudi Arabia and within reach of top producer Russian Federation, which pumps around 11-million barrels a day.

Despite the first-day success, the yuan-denominated trading and a blend of new rules and regulatory burdens could in the long-run hamper sustained take-up on the Shanghai International Energy Exchange (INE), executives at a dozen banks and brokers and experts involved in the launch told Reuters.

The contracts might not only help wrest some control over pricing from the main worldwide benchmarks, but yuan-denominated contracts could also promote the use of its currency in global trade - a key long-term goal for Asia's biggest economy.

A surprise to many was that Glencore executed Shanghai's first crude deal. Swiss-based commodity trader Trafigura, US-based Freepoint and independent refiner Shandong Wonfull were other early participants, Reuters said.

Over 21 million barrels of the sulphur-rich oil were traded yesterday, reports the Wall Street Journal, meaning RMB18.3 billion ($2.9 billion) changed hands.

However, a production-cutting pact between the OPEC, Russia and other producers has given a strong tailwind to oil prices, with both benchmarks hitting levels not seen since December 2014. While the commodity has been weighed down by U.S. supply concerns in the past, crude oil has moved up sharply in the past few weeks. Contracts set up by the Dubai Mercantile Exchange a decade ago have not matched Brent or WTI, traded on the Intercontinental Exchange and the New York Mercantile Exchange (NYMEX) owned by CME Group.

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