Thursday, 26 April, 2018

Global Trading Giants Dip Toes in China Oil Futures on Debut Day

Oil prices fall but still above $70 as US trade dispute with China looms Brent crude futures were at $70.24 per barrel down 21 cents or 0.3 percent. Image source Reuters
Kelvin Reese | 28 March, 2018, 01:07

Oil prices settled lower Monday, pulling back from the multiweek highs scored last week, with traders weighing trade tensions between the USA and China, as China marked the start of trading for its own crude futures contract.

Nearly 15.4 million barrels of Shanghai's most-active September contract changed hands in the 2-1/2-hour morning session to 03.30 GMT.

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.

"Whether this will have any real bearing on the other crude benchmarks, I'm not quite sure, but traders love a new toy, so I applaud China for bringing in something that could stoke up some volatility", said Matt Stanley, a fuel broker with Freight Investor Services (FIS) in Dubai.

Pricing oil in renminbi and launching a trading hub will raise China's prominence and integrate it further in global markets.

In Asia, crude oil is mainly priced against the Dubai, Oman and dated Brent benchmarks or Oman crude futures on the Dubai Mercantile Exchange. After an initial surge in volume that outpaced overnight transactions in global benchmark Brent crude in London, trading tapered off toward the end of the session and the contract closed at 429.9 yuan a barrel ($68.22). U.S. Treasury Secretary Steven Mnuchin said on Fox News that he's optimistic his country can reach a truce with China on trade.

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Meanwhile, "a rise in the number of oil rigs drilling for oil also weighed on oil prices", said Kapadia. Ltd., said that more futures markets, such as iron ore, are expected to open to offshore investors.

"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. Our short-term outlook and medium-term outlook on crude oil is bullish.

While Shanghai is offering 15 futures contracts with delivery dates stretching from September to March 2021, options trading - a fundamental building block of most commodities markets - is only in its infancy in China.

The Shanghai contract traded higher than its London and NY counterparts shortly after debuting, at 432.2 yuan ($68.43) per barrel for September settlement at around 0145 GMT, according to Bloomberg News.

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.

Chinese exchanges count each side of a trade - the buy and the sell - as two lots, meaning the total oil changing hands was 20,328 lots, equal to 20.3 million barrels.

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