Markets

Crude Oil Takes Breather After Strong Rally

Crude Oil Takes Breather After Strong Rally”

Wei cited Shao Yu, chief economist at the Chinese securities company Orient Securities, who stressed that "the contracts, denominated in yuan, can technically help China gain pricing power and internationalize the yuan, if a mature market with strong trading activities by global investors is set up".

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

In the longer term, the futures exchange will enable China's crude-buying patterns to become more transparent to the world.

A backwardation in the crude market structure represents higher prices for the nearby delivery month than the forward month contracts. They could also become a reference for China's crude market, which is likely to start having a bigger influence on global crude prices.

Despite the first-day success, the yuan-denominated trading and a blend of new rules and regulatory burdens could in the long-run hamper sustained take-up on the Shanghai International Energy Exchange (INE), executives at a dozen banks and brokers and experts involved in the launch told Reuters.

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The trading hours of the contracts are divided into two morning sessions, one afternoon session and one night session in a day.

China kicked off its first ever crude futures on Monday. The front-month Brent contract had settled Friday above $70 a barrel for the first time since late January.

"The. trade war story. should be taken into account when trying to quantify the potentially bullish effect of the geopolitical element in oil markets", said analysts at consultancy JBC Energy.

This could be seen as competition to the Dubai Mercantile Exchange's (DME) crude futures and potentially the assessments published by price reporting agency S&P Global Platts.

The first trading session saw a total of 62,500 contracts with more than 62 million barrels of crude traded for a notional volume of almost 27 billion yuan ($4 billion), Zerohedge reports.

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Futures trading would wrest some control over pricing from the main worldwide benchmarks, which are based on dollars.

Most sectors fell on Monday, led by financials and energy firms, while gains were seen in few sectors including healthcare companies.

But analysts said the long-delayed Shanghai-traded futures are unlikely to challenge the primacy of NY and London-based futures any time soon due to Chinese capital controls and the entrenched position of the dollar-denominated contracts. But by 5 p.m. Shanghai time, 37,655 of those Brent contracts had changed hands.

"We prefer to watch for a while", said one Weifang-based independent refiner.

Meanwhile, US crude oil production, which for the week ending March 16 increased to 10.407 million bpd, up from 10.381 million bpd the week prior.

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"Absence of a paper market could limit liquidity, as these contracts are expected to be physically settled". Prices assessed at the Shanghai exchange will reflect China's crude supply and demand.



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