China eyes new yuan-denominated oil benchmark with futures launch

China's first oil futures off to a flying start as Beijing vies for pricing power

Wei cited Shao Yu, chief economist at the Chinese securities company Orient Securities, who stressed that "the contracts, denominated in yuan, can technically help China gain pricing power and internationalize the yuan, if a mature market with strong trading activities by global investors is set up". On the other hand, the scholar predicted that once China's futures market becomes "more mature and transparent", the Shanghai oil futures contract will emerge as a full-fledged benchmark for global oil transactions.

China has launched yuan-dominated crude oil futures, a major step in Beijing's years-long push to win greater sway over oil.

Straits said it brokered the first trade for Glencore and cleared the deal through Xinhu Futures.

China's foreign ministry said on Monday Beijing is willing to hold talks with the United States to resolve their differences in a hopeful sign a potentially damaging trade war could be avoided. WTI's delivery point in Cushing, Oklahoma is hundreds of miles from the ocean, and the United States in any case banned crude oil exports for 40 years until 2015. A spread of producers also creates stability, preventing situations like Brent saw previous year, where the failure of a single pipeline risks sending prices spiralling out of control. The front-month Brent contract had settled Friday above $70 a barrel for the first time since late January.

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.

The spread between front-month September delivery futures contract and the second-month October contract stood at a premium of Yuan 3.5/b, maintaining the backwardated market structure since the debut opening at 9 am.

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Unipec, trading arm of Asia's largest refiner Sinopec, has inked a deal with a western oil major to buy Middle East crude priced against the Shanghai futures contract, a senior company official said on Monday.

At the end of the morning session, Shanghai prices were up 3.92 per cent at 432.4 yuan, with 30,742 lots traded.

They mainly trade higher-quality light sweet crude oil, while the yuan contracts on the Shanghai International Energy Exchange involve mainly medium-sour crude. Steep price rises relented when China intervened with tighter trading rules, higher fees and shorter trading hours.

The Chinese government would rather have a slightly slower or softer launch so it doesn't have to intervene early on in a market that's bubbling too quickly, said Michal Meidan, an analyst at industry consultant Energy Aspects Ltd.

Few analysts doubt that Asia is overdue a financial oil price benchmark, and that China with its vast consumer and production base is a prime location for it.

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