Investors test the waters as oil futures start trading

By Xie Jun Source:Global Times Published: 2018/3/26 21:33:39

China to gain more say in intl oil pricing

Domestic companies remain cautious about entering domestic crude oil futures trading, which opened Monday morning, the first ever international crude futures contract launched by China, the world's biggest oil buyer.

The yuan-denominated futures on the Shanghai International Energy Exchange traded at 429.9 yuan ($68.30) a barrel for September by the end of the trading day at 3 pm, slightly down from 440 yuan at the start of trading, but still above the preset reference point of 416 yuan by 3.34 percent.

In comparison, the September contracts of the two major dollar-based oil benchmarks, Brent Oil Futures in London and West Texas Intermediate (WTI) in New York, traded at $69.78 a barrel, down 0.04 percent, and $65.78 a barrel, down 0.2 percent, as of 19:33 pm on Monday.

The launch of the oil futures marks the end of years of delays and exploration after the government's announcement to standardize oil prices in 1994 terminated oil futures trading which emerged in China just one year earlier.

The first crude futures trade on Monday was carried out by Swiss-based commodity trading and mining company Glencore through domestic brokerage Xinhu Futures, according to a statement published on Xinhu's website on Monday.

Li Qiang, director of the research center under the Xinhu Futures, told the Global Times on Monday that the Shanghai crude oil futures mark China's first attempt to open the country's commodity markets to overseas investors, as the government has been somewhat flexible toward outbound commodity trading but cautious about granting inbound investment.

"Also, intermediate commodities like plastics are more common on the domestic futures market, while raw material commodities like crude oil are rare, which makes the establishment of this oil futures more precious and meaningful," Li said.

He also noted that setting a yuan-denominated futures would help China have a say in international oil pricing, but it might take time, when China's futures market is more mature and transparent, before overseas traders can fully recognize domestic pricing. "Of course, some domestic companies might still use overseas benchmarks in the future for habits or convenience," he said.

Ge Jie, an operational manager at Pingan Securities, said that in the past WTI was the most common pricing benchmark for domestic oil companies.

China imported 419.6 million tons of crude oil in 2017, up 10.1 percent on a yearly basis, data from the General Administration of Customs show.

Ge said that based on the first day's trading, most domestic investment in the crude oil futures was for hedging purposes.  That means commodity traders make futures transactions that can secure an advantage or protection against a possible change in the price of an item that will be traded in the future.

Xi Jiarui, an oil analyst at domestic commodities information website, told the Global Times on Monday that before the Shanghai crude oil futures were established, domestic oil companies usually had limited access to any hedging tools.

"Only very few of them would go to overseas oil futures to make transactions," Xu said.

Ge said because many domestic companies are getting familiar with the concept of oil futures trading, many of them are still taking a wait-and-see attitude.

"Many private refineries, especially those based in East China's Shandong Province, are most active in futures trading, while bigger or State-owned companies are more cautious," he said.

Li also stressed that domestic companies are still adapting to the crude oil futures. "The fact that trading corrected a little from the opening time today also shows that investors are still testing the waters," he told the Global Times.


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