Shanghai Crude Oil Futures Debut

This takes the INE closer to providing the range of crude oil trading activities offered in London, New York, Singapore and elsewhere, but with the added advantage of being on the doorstep of the world's largest import market.

Now that China is the largest importer of crude oil in the world, it makes sense to accelerate the development of a fully fledged crude oil trading exchange.

As it stands, oil exporters store the revenue from their US oil sales in Treasury bonds - a process known as "petro-dollar recycling".

In 2017, the total traded value of ShFE's steel derivatives contracts was $4.4 trillion from domestic investors.

Beyond trade concerns, crude was pressured by a rise in the number of active United States oil rigs to a three-year high of 804, implying further rises in production.

In Asia, crude oil is mainly priced against the Dubai, Oman and dated Brent benchmarks or Oman crude futures on the Dubai Mercantile Exchange. Swiss-based commodity trader Trafigura, US-based Freepoint and independent refiner Shandong Wonfull were other early participants, Reuters said.

"China has used this contract in an innovative way, to fill the void of a voice representing buyers in Asia", Shanghai-based ICIS-China analyst Li Li said. This is especially important amid the ongoing tariff war between the U.S. and China.


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. They've frequently had to step in to quell speculation in the country's commodities exchanges over the past few years as unprecedented trading by retail investors caused prices to swing violently.

"It's hard to see it becoming a major driver of oil prices in the short to medium term", said Daniel Hynes, a senior commodities strategist at Australia & New Zealand Banking Group.

Chinese online newspaper Global Times specified that the Shanghai yuan-denominated crude futures were traded Monday "at 429.9 yuan ($68.30) a barrel for September by the end of the trading day at 3 pm (GMT+8), slightly down from 440 yuan at the start of trading, but still above the preset reference point of 416 yuan by 3.34 percent".

Lower crude prices have played a part as to why not earlier.

The jump came after Brent futures for May delivery opened above $70 per barrel for the first time since January on expectations OPEC-leader Saudi Arabia may extend supply cuts into 2019, as well as over concern that the United States may re-introduce sanctions against Iran.

Shanghai Crude aims to rival the world's two crude benchmarks, luring overseas traders with the promise of a deep pool of liquidity and the chance for arbitrage between Asian, U.S. and European markets.

  • David Armstrong