28 March, 2018
The Shanghai Futures Exchange is playing down speculation that the aim is to create a global oil benchmark, stressing that it will be a long time before the contracts become a major hedging tool for global and domestic oil producers, refiners and consumers.
The oil futures with delivery in September began the stock exchange session at a price of 440 CNY per barrel, and by noon almost 15,000 contracts changed their owners.
China's yuan-denominated crude oil futures have launched in Shanghai, and were up sharply in the first day of trading. US West Texas Intermediate (WTI) crude futures fell 26 cents to $65.62. Here are some of the other key questions.
"We will play an active part in the crude futures trading".
Stephen Innes, head of trading for Asia-Pacific at futures brokerage Oanda in Singapore said there was "considerable resistance" as current or higher prices opened the possibility that even more U.S. shale producers could come back online. And China would benefit from having a benchmark that reflects the grades of oil that are mostly consumed by local refineries and differ from those underpinning Western contracts.
But foreign investor response to those openings has been tepid, and while analysts say the yuan oil futures will help further internationalise China's markets and increase crude price transparency in Asia, the dollar's position as the world's petro-currency remains solid. The Asian nation's purchases reached a record high in January. A spread of producers also creates stability, preventing situations like Brent saw a year ago, where the failure of a single pipeline risks sending prices spiralling out of control.
That's different to global exchanges, like the CME, which uses a ratio based on an investor's traded volume. There's also concern over volatility. Deliveries will be from ports of Oman, Qatar, Yemen, Iraq (Basra) and East China. In recent years, it repeatedly delayed its new contract amid turmoil in equities and financial markets. Speculators are driving prices higher because of the fear of the unknown, but gains are being capped by fear of the known.More news: Juan Martin del Potro over the moon after beating Federer
At the close, the Shanghai Composite index was down 0.6 percent at 3,133.72, while the blue-chip CSI300 index also lost 0.6 percent at 3,879.89. But by 5 p.m. Shanghai time, 37,655 of those Brent contracts had changed hands.
Trading margins for the futures were set for 7 percent of the contract value. One positive is that the contract will be based on seven different grades, mainly from the Arabian Gulf but also including China's own Shengli.
Skeptics argue that hurdles such as capital controls, regulatory risk and market intervention in other Chinese securities have made investors cynical about the prospect of Shanghai futures becoming a regional price-setter. In early 2016, the then-head of the LME said it was possible some Chinese traders did not even know what they were trading as investors piled into everything from steel reinforcement bars to iron ore.
According to Wei, this activity is especially important amid the US-Chinese row over the Trump administration's new high tariffs on Chinese imports, which is largely seen as nothing short of a trade war between Beijing and Washington.
That remains to be seen. Restrictions on moving money in and out of the country have been tightened in the past two years after a shock devaluation of the yuan in 2015 prompted a surge in money leaving the mainland.
"The. trade war story. should be taken into account when trying to quantify the potentially bullish effect of the geopolitical element in oil markets", said analysts at consultancy JBC Energy.
Shell International Eastern Trading the trading arm of Royal Dutch Shell, was heard to be the seller, said multiple sources that participate in the market, although a Shell spokeswoman declined to comment.