Economy

Shanghai crude oil futures jump more than 6%

Madeline Patrick
Mar 29, 2018     
Shanghai crude oil futures jump more than 6%

Active trading of the yuan-denominated crude contracts in Shanghai could eventually give mainland oil companies and consumers a greater say in pricing the commodity. Still, concerns over American shale oil remain, with analysts forecasting a gain in US crude inventories last week. The global benchmark traded at a $5.06 premium to WTI.

Looking at crude oil's newest Chinese benchmark, the commodity is now trading between Brent and WTI prices.

Oil has rallied amid geopolitical tensions and signs that USA oil stockpiles are dwindling. That initially eclipsed volumes traded in the Brent May contract, before Europe's benchmark came alive around 0500 GMT. The first three days of trading have been fairly volatile, with a small number of outstanding contracts but with very high trading turnover. "The fact that the government is encouraging the exchange and also is not shy about stepping in to occasionally change the rules may discourage global players", said Jeff Brown, president of energy consultancy FGE.

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.

A surprise to many was that Glencore executed Shanghai's first crude deal. Swiss-based commodity trader Trafigura, U.S. -based Freepoint and independent refiner Shandong Wonfull were other early participants.

Shanghai crude oil futures got off to another strong start in their second day of trading on Tuesday.

Oil's decline Monday was "simply profit taking after the large upward move last week, as well as the fact that around $70 Brent and $66 WTI have been the ceiling for several months now", Michael Corley, president of Mercatus Energy Advisors, told MarketWatch.

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State-run Sinopec Corp, Asia's top refiner, said last month it expected to boost its US crude oil imports this year to more than 10 million tonnes, or 200,000 bpd.

In Asia, crude oil is mainly priced against the Dubai, Oman and dated Brent benchmarks or Oman crude futures on the Dubai Mercantile Exchange.

Reports the United States was considering a crackdown on Chinese investment also sent stocks tumbling, stoking trade war fears again, sources said.

Speculative retail and institutional investors also propped up the launch-day's liquidity, said Chen Tong, Shanghai-based senior crude analyst at First Futures.

"In the short-term, we believe price fluctuations will reflect domestic crude oil supply and demand". Brent crude futures were at $69.65 per barrel, down 46 cents, or 0.7 per cent.

More than 32,000 lots of the most-active September contract, equivalent to 16 million barrels of crude, changed hands in the overnight and morning sessions. Spot Shanghai crude futures were down by 4.2 per cent on Wednesday, to 408.3 yuan ($65.04) per barrel by 0357 GMT. This is especially important amid the ongoing tariff war between the United States and China.