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China Launches A Crude Oil Options Contract For Foreign Traders

The Shanghai International Energy Exchange (INE) launched on Monday a crude oil options contract open to foreign traders as part of a plan to boost China’s pricing power in commodities.  

The crude oil options contract is the first in the energy sector options open to overseas traders, and although volumes were low on the first day of trade, analysts told Reuters that there is interest in the contract.  

China launched its yuan-denominated crude oil futures in March 2018, a development that had been in the works for years. Many awaited the launch eagerly, seeking to tap China’s bustling commodity markets, although doubts remained whether the Shanghai futures contract will be able to become another international oil benchmark. These doubts centered on the fact that China is not a market economy, and the government is quick to interfere in the workings of the local commodity markets on any suspicion of a bubble coming.

Last month, the China Securities Regulatory Commission (CSRC) approved the launch of crude oil options open to foreign investors as part of its efforts to open up the derivatives market. In commodities, palm oil options trades also opened to foreign investors last week, but the crude oil options contract launched today was the first energy options in which non-domestic traders can trade.

Commodity traders Trafigura, Mercuria, and Freepoint Commodities, as well as Chinese brokerage CITIC Securities and Hong Kong-based subsidiaries of PetroChina International, were among the companies involved in the crude oil options trades on Monday, according to INE’s owner, the Shanghai Futures Exchange, Reuters reports.

There is interest among market participants, but just like with the yuan-denominated crude oil futures launched three years ago, the options contract open to foreign traders will take time to attract liquidity, Lee Lian Tuck, Head of Listed Derivatives -Asia at brokerage StoneX, told Reuters. Domestic investors have shown more interest in the crude oil options contract so far, he added.

By Michael Kern for Oilprice.com

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