China launched yuan-denominated oil futures contract

In China, the Shanghai International Energy Exchange (INE), the daughter of the Shanghai Futures Exchange (SHFE) launched yuan-denominated oil futures trading.

The launch ceremony took place on the site in the business district of Pudong.

The regulator “has the confidence, resolution and capability to build a sound crude oil futures market”, Liu Shiyu, chairman of the China Securities Regulatory Commission said at the Shanghai Futures Exchange before trading got under way. “It will play an important role in China’s economy”.

Huang Lei, an independent commodity futures market analyst, said it was just “a first step for China to gain pricing power”.

The official stressed that the preparation for the launch of the yuan-denominated oil futures took 17 years.

The opening ceremony was also attended by Party Committee Secretary Mr. Shanghai L. Qiang, representatives of various government departments and private financial institutions.

According to the exchange, the volume of the contract will be 1 thousand barrels, the minimum price step is 0.1 yuan per barrel. Deliveries will be made from the ports of Oman, Qatar, Yemen, Iraq (Basra) and East China.

Loading ports can be further adjusted to market conditions, the supplied oil will be stored in 7 storage facilities located in the coastal areas of the Chinese provinces of Zhejiang, Shandong, Guangdong, Liaoning, and also in the deep-water port of Shanghai. The trading sessions are divided during the day and will be held at the following interval: 09:00-10:15, 10:30-11:30 and 13:30-15:00 local time. (04:00-05:15, 05:30-06:30 and 08:30-10:00 MSK).

Foreign participants of the auction will be able to carry out funding in foreign currency at the rate of the Chinese foreign exchange on the day of the auction.

The US dollar is set as the foreign currency for this trade.

Earlier, the Ministry of Finance of China announced the release of non-residents, working with the instrument, from paying income tax for up to 3 years.

According to observers, futures are necessary for China, as the largest importer of oil in the world, to control the pricing of this energy carrier.

In a statement issued a few days before the launch of the auction, the State Committee for Securities Control stressed that the oil futures in yuan would further open the country’s financial market and become a risk management tool for oil companies.

According to the exchange, trades of the new instrument on the first working day opened at 440 yuan (about 69.8 US dollars) / barrel of oil.

More than 400 Chinese and foreign customers took part in them, including such companies as Unipec Asia Company Limited, Glencore Singapore Pte Ltd, North Petroleum International Company Limited, and others.

Within first hours more than 200 transactions were concluded.
At present, China leads the world in importing oil, and also ranks second as its consumer, which were 610 million tons in 2017.

ChinOil contributes to the data.

The dependence of the country on oil purchased abroad reached 70% in 2017.

In 2017 China imported 420 million tons of this energy carrier.

The fact that China planned to launch oil futures trading became known in January 8, 2018.

The largest oil benchmarks today are WTI – traded on the New York Stock Exchange and Brent – traded on the London Stock Exchange.