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China's crude oil futures market takes flight

China, the world’s largest crude oil buyer, started trading Monday of the first yuan-denominated oil futures trading contract on the Shanghai International Energy Exchange.

Why it matters: It’s a move by the energy-hungry nation to bolster its influence over pricing. "The aim is to wrest some control, away from US dollar-based international benchmarks, such as the West Texas Intermediate and Brent markers, so that prices reflect as closely as possible the crudes processed by Chinese refineries," per the Financial Times.

Early results: “The most actively traded futures contract due for delivery in September closed up 3.3% at 429.9 yuan ($68.07) per barrel...after opening up more than 6% from a starting reference point of 416 yuan per barrel,” The Wall Street Journal reports from Shanghai.

What’s next: A note Monday from Wood Mackenzie looks at the potential influence. “As a start, we expect more influence on Basrah Light and Oman prices as they account for a significant portion of the contract volumes. China imports about 600 kb/d of Oman crude,” per research director Sushant Gupta.

  • “In the longer term, the futures exchange will enable China's crude-buying patterns to become more transparent to the world. Prices assessed at the Shanghai exchange will reflect China's crude supply and demand. They could also become a reference for China's crude market, which is likely to start having a bigger influence on global crude prices,” Gupta writes.
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