China Launches First Oil Contract, Challenges EU and US

China has finally launched its first crude-futures contract; the world’s biggest oil buyer seeks a crucial step to wield greater pricing power and to challenge competing industry benchmarks in Europe and the US.

One of China’s ultimate goal is to create a crude oil benchmark located in Shanghai that can help its capital Beijing wrest some pricing power away from international competitors such as Intercontinental Exchange Brent contract and the New York Mercantile Exchange WTI.

China’s commodity markets mark the first trading futures from outside investors. In order to attract more participation, the country plans to raise income taxes for overseas individuals and institutions. 

According to the reports, about 19 foreign brokers had registered trade the contracts as of last week. 

A commodity analyst said it was a first step for the country to gain pricing power. The analyst added that the exchange and regulators will make further efforts to attract foreign investors.

China Surpasses US as 2017's Biggest Oil Importer

China surpasses its economic rival, the United States as the world’s biggest crude oil importer. This gives additional power to the Chinese government additional power in controlling rates from offshore markets, as well as promoting their official currency yuan for long-time international use in the global market.

The yen-denominated futures on the Shanghai International Energy Exchange traded 429.9 yuan ($68.28) per barrel, down by 2.3 percent from an opening level of 440 yuan ($70.06). The price was about $3 higher than that of the WTI crude, while nearly $2 lower than the price of Brent crude.

Within the trading session, the contract fluctuated between 426.3 yuan ($67.90) and 447.1 yuan ($71.21). More than 40,000 contracts changed hands worth 17.64 billion yuan.

According to the February 2018 reports, the Energy Information Administration said that China’s consumption of petroleum and other liquid fuels in 2017 was the world’s largest for the ninth consecutive year, growing 0.4 million b/d (3%) to 13.2 million b/d. In addition, with the help of their petroleum reserves, China’s crude oil imports have increased faster than their domestic consumption.

Due to China’s developing refinery capacities, its imports also increased by an estimated 0.5 million b/d in 2017 to 11.4 million b/d, driven in part by two refinery expansions in the second half of the year. In the third quarter of 2017, a third refinery started operating in Anning, Yunnan province. It produced an average of 260,000 b/d. Finally, China National Offshore Oil Corporation’s Huizhou refinery has increased its capacity by 200,000 b/d and its imports from various sources in the last two quarters of 2017.

HQBroker is here to give you a daily news roundup about the forex, commodities, technologies, automobiles, and economies. You can open an account now and make yourself updated with essential news in the market.