Friday, 20 April, 2018

China extends its influence on the crude oil market to pricing

Reuters Reuters
Heather Davidson | 28 March, 2018, 01:10

First-day enthusiasm saw 20 million barrels of September oil changing hands in Shanghai by the 3:00 p.m. (0700 GMT) close, but it's not clear the pace will hold in the night session, which runs from 9:00 pm to 2:30 am, or on into coming days.

Trade tensions appeared to ease a bit on Monday, however, as The Wall Street Journal reported (http://www.marketwatch.com/story/us-china-said-to-be-talking-behind-the-scene-to-avoid-trade-war-2018-03-25) that China and the us have quietly started negotiating to improve USA access to Chinese markets.

China's crude oil futures will be a major step in Beijing's years-long push to win greater sway over oil pricing, but for western traders it will likely bring frustration as well as opportunity.

Straits said it brokered the first trade for Glencore and cleared the deal through Xinhu Futures.

Chinese commodity futures investors do not typically trade steadily over the months, but instead pick specific months in which they deal, due to a different cost structure.

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.

That went against the received wisdom that as a yuan-denominated contract, it's primarily going to be bought by China's domestic duopoly of PetroChina and China Petroleum & Chemical, or Sinopec, with a smaller trickle heading to the handful of plants operated by Cnooc and Sinochem, plus the array of independent processors known as teapot refineries.

But the move to trade oil in yuan will diminish the role of the greenback in global financial markets, argues Briscoe.

Oil traded above $66 a barrel Tuesday morning as global trade tensions showed signs of easing, countering concerns that USA crude stockpiles may have resumed their expansion last week.

The decision to extend the production cuts has seen crude oil prices rising, but a major factor countering efforts by OPEC and Russian Federation is USA oil production which has soared and is fast approaching 10 million bpd.

Futures for September settlement opened at 440 yuan a barrel, up from a reference price of 416 yuan. Brent crude is now above $70.20.

Yang Xiaoping, president of BP China, said China's crude oil futures offer companies in the real economy a hedging tool that can better reflect market conditions in Asia.

The jump came after Brent futures for May delivery opened above $70 per barrel for the first time since January on expectations OPEC-leader Saudi Arabia may extend supply cuts into 2019, as well as over concern that the United States may re-introduce sanctions against Iran.

This could mean the contract risks having to play catch-up each morning to the moods and swings of Europe and America, rather than setting its own price, several senior futures traders said. Brent is slightly higher, while WTI is trading flat.

"It's a China market, with Chinese characteristics", said Helmig.

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