• 4 minutes Mueller Report Brings Into Focus Obama's Attempted Coup Against Trump
  • 7 minutes Countries with the most oil and where they're selling it
  • 10 minutes Stack gas analyzers
  • 13 minutes What Would Happen If the World Ran Out of Crude Oil?
  • 1 day US Military Spends at least $81 Billion Protecting OPEC Persian Gulf Oil Shipping Lanes (16% DoD Budget)
  • 9 mins How many drilling sites are left in the Permian?
  • 1 hour "Undeniable" Shale Slowdown?
  • 7 hours Mueller Report Brings Into Focus Trump's Attempts to Interfere in the Special Counsel Investigation
  • 1 day Overheating the Earth: High Temperatures Shortened Alaska’s Winter Weather
  • 2 days China To Promote Using Wind Energy To Power Heating
  • 1 day Gas Flaring
  • 1 day Climate Change Protests
  • 8 hours Case against Trans Mountain Begins
  • 7 hours Trudeau Faces a New Foe as Conservatives Retake Power in Alberta
  • 24 hours Everything Is Possible: Germany’s Coal Plants May Be Converted to Giant Batteries
  • 16 hours U.S. Refiners Planning Major Plant Overhauls In Second Quarter
  • 2 days Japan’s Deflation Mindset Could Be Contagious
  • 1 day Tax Credits for Energy Storage

Breaking News:

Guaido Takes Strides To Topple Maduro

Oil Rebounds On Bullish Inventory Data

Oil Rebounds On Bullish Inventory Data

Oil prices recovered somewhat on…

The Top 5 Hotspots For Renewables In The Middle East

The Top 5 Hotspots For Renewables In The Middle East

Renewable energies, and solar in…

China’s New Oil Futures Face Volatility Fears

Trading Screen

It has been a hectic three days for the newly launched Chinese crude oil futures on the Shanghai Exchange, with the contract plunging heavily yesterday after a mass selloff.

The contract started trading on Monday, adding 6 percent in just the first session that lasted two and a half hours. Since then, however, the price has been moving up and down, with the “down” especially pronounced on Wednesday as traders kept their eyes and ears open for developments on the wider international market.

Meanwhile, Goldman Sachs analysts warned that “Elevated transactions fees, margin requirements and position limits may ultimately dampen the size and price impact of INE speculative flows, with the exchange already publicly stating its desire to limit volatility and large price moves.”

The Shanghai contract’s price relative to Brent and WTI was what analysts paid special attention to, expecting freight costs for delivery of the crude to China to serve as a tailwind, while the generally lower quality of the crude included in the contract to apply counterpressure.

Indeed, on Wednesday, the Shanghai contract had dropped below Brent but above WTI. According to Bloomberg, this signals that market players are still waiting for the contract to find its real value.

Another note Bloomberg makes is that trade in the new futures has so far concentrated on the front-month contract, which leaves less liquidity for deliveries further down the road, effectively stopping oil industry participants from taking advantage of the futures contracts to hedge against price fluctuations—one of the principal purposes of futures contracts by definition.

Related: The End Of The Status Quo In LNG Markets

One other outtake from the first three days of trade is that open interest in the yuan-priced futures is much smaller than that on Dubai oil futures. This, according to a senior analyst from J. P. Morgan, indicates overactive speculative trading in the contract, which is exactly what Beijing does not want for its future oil benchmark. Still, it is early days, so it would be reasonable to wait a while longer before drawing any definite conclusions about the yuan futures’ fate.

By Irina Slav for Oilprice.com

More Top Reads From Oilprice.com:



Join the discussion | Back to homepage

Leave a comment

Leave a comment

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