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China launches crude oil futures trading

28 March, 2018, 01:10 | Author: Melinda Barton
  • Oil prices fall but still above $70 as US trade dispute with China looms

Brent and WTI crude oil futures dipped on Monday as concerns of a looming trade dispute between the United States and China weighed on global markets.

In strict accordance with its initial plan, China launched yuan-denominated oil futures on the Shanghai International Energy Exchange on March 26, thus challenging the dominance of the Brent and West Texas Intermediate (WTI) benchmarks.

The contracts, which are open to foreign investors, end years of delays and setbacks since China's first attempt to list crude oil futures in 1993.

U.S. crude inventories were forecast to have risen for the fourth time in five weeks, according to analysts polled ahead of inventory reports for last week from industry group American Petroleum Institute (API) later on Tuesday and the U.S. Energy Department's Energy Information Administration (EIA) on Wednesday. The global benchmark traded at a $4.56 premium to WTI. With this, the country, which is also the world's largest buyer of crude oil is trying to gain more control over pricing, challenging European and United States benchmarks.

Once the exchange has established the prices of marker crude oil grades in China, these prices would have to be reflected in prices offered by suppliers in the Middle East and USA. This compares with global turnover of more than $10 trillion in worldwide oil futures, the world's biggest commodity market.

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.

Despite this, Brown said there were concerns over regulatory interference, as seen in other Chinese financial commodity markets, including iron ore and coal. "For oil, we expect the supply deficit of the past couple of quarters to give way to a surplus, driven largely by strong growth in USA tight oil supply", Barclays Research analysts said in a note, a reference to U.S. shale production.


"In the short-term, we believe price fluctuations will reflect domestic crude oil supply and demand".

Crude oil prices slipped slightly on Monday but a rebound in stock market and the escalating Saudi Arabia - Iran tensions capped the losses and supported Brent crude futures at over $70 per barrel.

Brent for May settlement rose to $70.97 a barrel on the London-based ICE Futures Europe exchange.

The most-active September contract opened at 440.4 yuan per barrel from a reference point of 416 yuan, and jumped to as high as 447.1 yuan in the first few minutes.

The price of Brent hit $71 per barrel in the middle of January, despite surging production by the United States, which is offset by the production cuts led by the Organisation of Petroleum Exporting Countries (OPEC) and Russian Federation.

At 9:24 a.m. (0224 GMT) prices were up 3.29 per cent at 430 yuan, with 19,122 lots, equal to 19.1 million barrels of oil, traded.

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