Economy

Shanghai Crude Oil Futures Debut

Shanghai Crude Oil Futures Debut

China first planned to launch its yuan-denominated futures contracts for crude oil in 2012 when oil prices exceeded US$100 a barrel, an apparent effort to secure bargaining power to price the commodity in light of the country's increasing reliance on imported oil.

United States President, Donald Trump, last week signed a memorandum that could impose tariffs on up to $60 billion of imports from China. Prices assessed at the Shanghai exchange will reflect China's crude supply and demand.

LONDON, March 26 (Reuters) - Crude oil futures slipped on Monday, but losses were capped by a rebound in stock markets and escalating Saudi-Iran tensions. Treasury Secretary Steven Mnuchin said on Fox News that he's optimistic the USA can reach a truce with China on trade.

The contracts, which are open to foreign investors, end years of delays and setbacks since China's first attempt to list crude oil futures in 1993.

As it stands, oil exporters store the revenue from their USA oil sales in Treasury bonds - a process known as "petro-dollar recycling". Brent is priced off of North Sea oil and is a primary value marker for Europe, Africa and Middle East crudes.

About 19 foreign brokers had registered to trade the contracts as of last week, the exchange said.

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Asian equities followed their USA counterparts higher Trump's administration was said to be urging China to lower tariffs on cars and open its market to US financial services.

A surprise to many was that Glencore executed Shanghai's first crude deal.

The Trump administration last week reshuffled its national security team with more hawkish officials who have been opposed to a 2015 US -led worldwide agreement to curb Iran's nuclear program.

China has launched yuan-dominated crude oil futures, a major step in Beijing's years-long push to win greater sway over oil.

"I don't see anything extraordinarily bearish in the market today".

Singapore-based brokerage Phillip Futures said that "surging production levels persist" in the US.

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The early involvement of big worldwide traders was a morale boost to the fledging market, but state oil majors like PetroChina and Sinopec are expected to provide a significant amount of liquidity in the long-term.

C-OUT-T-EIA U.S. oil output has already jumped by a quarter since mid-2016 to 10.4 million barrels per day (bpd).

In Asia, crude oil is mainly priced against the Dubai, Oman and dated Brent benchmarks or Oman crude futures on the Dubai Mercantile Exchange.

"We have been using the Platts Dated Brent prices to procure crude, so there is no need for us to participate in the Shanghai crude futures", said another Shandong-based independent refiner. Within minutes of the launch, the price had gone up to nearly US$70.85 (447 yuan) from a starting price of US$69.94 (440.4 yuan) per barrel.

The deal is scheduled to last through 2018, and there has been recent support by OPEC's de-facto leader Saudi Arabia to extend the cuts into 2019.

Brent and WTI, in contrast, were down by that time, weighed down by concerns over a looming US trade dispute with China.

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