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China Puts Shanghai Oil Futures Contract Launch On Hold

China trader

Faced with international investors’ concern over China’s potentially heavy interventions on money and commodity markets, Beijing has quietly postponed, probably by years, the launch of a new crude oil futures contract, Reuters reported on Friday, quoting five sources in the know.

China has had ambitions for years to create a new oil futures contract that would be traded on the Shanghai International Energy Exchange INE, but foreign investors have been recently spooked by Beijing’s policies for the yuan currency and capital outflows and last year’s intervention on the volatile commodity markets, according to Reuters sources.

China has been planning the launch of the new contract to add to the global benchmarks, the WTI and Brent, but faced with investor worries, INE has quietly put those plans on the back burner.

INE had been in contact with traders for most of last year, but then went silent at the end of 2016. The launch of the new futures contract is now being considered “off the table” for a few years, a manager at an international bank told Reuters.

In the middle of 2015, China was hoping that it could launch the new contract by the end of that year.

As this did not happen, the timeline was further pushed, and in March 2016 another delay, this time by government review of INE, postponed the launch of the contract to late 2016.

Related: Has OPEC Seriously Underestimated U.S. Shale Dynamics?

A few months later, officials told S&P Global Platts that the launch was unlikely to happen in 2016 because China wanted stricter regulations to prevent high volatility on the equity and steel markets.

Back then, an official told Platts:

“It is unlikely that the contract will be online this year. The contract is priced in yuan and it will be traded internationally. Any wild movements would damage the reputation of the currency, which is being promoted to be an international currency.”

Now it seems like international investors’ concerns have prevailed over the ambitions to launch oil futures contract in China.

By Tsvetana Paraskova for Oilprice.com

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