• 3 minutes Is Pete Buttigieg emerging as the most likely challenger to Trump?
  • 5 minutes Can LNG Kill Oil?
  • 8 minutes Question: Why are oil futures so low through 2020?
  • 11 minutes Don't sneeze. Coronavirus is a threat to oil markets and global economies
  • 13 mins “The era of cheap & abundant energy is long gone. Money supply & debt have grown faster than real economy. Debt saturation is now a real risk, requiring a global scale reset.”"We are now in new era of expensive unconventional energy
  • 2 hours CoV-19: China, WHO, myth vs fact
  • 11 hours Question - What if there are no buyers for Chevron's Appalachia Assets?
  • 36 mins Blowout videos
  • 1 day OIL trades as if the virus is a 1 quarter event. As if it's Containable, Reversible and Temporary. Is it ?
  • 1 day Energy from thin air?
  • 2 days Hey NYC - Mayor De Blasio declares you must say goodbye to fossil fuels. Get ready to freeze your Virtue Signaling butts off.
  • 7 hours Natural Gas
  • 2 days Foxconn cancelled the reopening of their mfg plants scheduled for tomorrow. Rescheduled to March 3rd. . . . if they're lucky.
  • 2 days Fast-charging, long-running, bendy energy storage breakthrough
  • 10 hours Cheap natural gas is making it very hard to go green
  • 1 day Coronovairus, Phase One Agreement, Lower for Longer
Alt Text

Chinese Refinery Run Rates Fall To 6-Year Low

Chinese oil refiners have cut…

Alt Text

The Risk Of Stranded Energy Assets

The specter of stranded assets…

Alt Text

Why Cramer Is Wrong About Oil Stocks

Mad Money host Jim Cramer…

Charles Kennedy

Charles Kennedy

Charles is a writer for Oilprice.com

More Info

Premium Content

China Hopes To Setup New Oil Futures Contract By End Of Year

Recognizing its position as the world’s largest oil importer, China is moving to create a futures contract for crude.

The new contract would be listed on the Shanghai International Energy Exchange, known as INE, and trading could begin by the end of the year. The benchmark will not rival WTI or Brent just yet, but China is an increasingly important market for crude oil, as well as other commodities. According to the Wall Street Journal, investors in China are looking for new investment vehicles to get in on commodity markets, and the new Asian benchmark would provide that. Related: Three Eagle Ford Stocks Worth A Look

There would be some unique hurdles that could hold back the new Shanghai oil benchmark, the largest of which is the fact that it will be priced in the local currency, the yuan. That reflects the interest in having a marker that is available to Chinese investors. Still, China wants it to be a global benchmark, and has promised to keep it open to foreign investors. That would provide the fledgling market with liquidity.

But the problem is that oil is traded in US dollars around the entire world. Creating a new benchmark priced in a different currency imposes extra risks on investors. Not only is oil historically volatile, which is something commodity traders always have to worry about, but trading in yuan will add currency risk on top of commodity risk. Related: Cold Shoulder For Russia Could Hint At OPEC Decision June 5th

Another problem is that the new marker will use 100 barrels of oil in a given futures contract, instead of the international norm of 1,000 barrels per contract.

China does not have an entirely open market and has restrictions on the movement of capital. Yet over time, ever so gradually, it has relaxed controls. The interest in creating a new oil futures contract demonstrates another step forward in a long campaign to open up its economy. Related: Forget the Noise: Oil Prices Won’t Crash Again

The new contract will also better reflect market conditions in Asia, rather than elsewhere in the world. WTI is a benchmark for US oil market conditions, while Asia tends to depend heavily on the Brent marker based in the North Sea. But specific developments that occur in the North Sea (say, a supply outage) could lead to a spike in Brent prices, which would then affect pricing in Asia regardless of circumstances there. China hopes to mitigate this risk by setting up the local futures contract.

By Charles Kennedy of Oilprice.com

More Top Reads From Oilprice.com:




Download The Free Oilprice App Today

Back to homepage




Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News