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China Is About to Shake Up the Oil Futures Market


It’s taken a quarter of a century, but China’s finally getting its own oil futures.



At 9 a.m. local time on Monday, crude contracts will begin trading on the Shanghai International Energy Exchange . The world’s biggest oil buyer is offering yuan-denominated futures that foreigners can buy and sell -- a first in Chinese commodities. Among the most intriguing questions is whether the traditional benchmarks of Brent crude in London and West Texas Intermediate in New York will face a serious challenger. Here are some of the other key questions.



1. Why is this important for China?


Futures trading would wrest some control over pricing from the main international benchmarks, which are based on dollars. Denominating oil contracts in yuan would promote the use of China’s currency in global trade, one of the country’s key long-term goals. And China would benefit from having a benchmark that reflects the grades of oil that are mostly consumed by local refineries and differ from those underpinning Western contracts.


2. Why now?


The push for oil futures gained impetus in 2017 when China surpassed the U.S. as the world’s biggest crude importer. The Asian nation’s purchases reached a record high in January.


Lower crude prices have played a part as to why not earlier. Chinese oil futures were proposed in 2012 following spikes above $100 a barrel, but prices in 2017 have averaged little more than $50. There’s also concern over volatility. China introduced domestic crude futures in 1993, only to stop a year later because of volatility. In recent years, it repeatedly delayed its new contract amid turmoil in equities and financial markets. Such destabilizing moves have often prompted China’s government to intervene in markets in one way or another.


3. How do oil futures work?


Futures contracts fix prices today for delivery at a later date. Consumers use them to protect against higher prices down the line; speculators use them to bet on where prices are headed. In 2017, oil futures contracts in New York and London outstripped physical trading by a factor of 23. Crude oil is among the most actively traded commodities, with two key benchmarks: West Texas Intermediate, or WTI, which trades on the New York Mercantile Exchange, and Brent crude, which trades on ICE Futures Europe in London.


4. How will Shanghai futures work?


Trading hours will be 9 a.m.-11:30 a.m. and 1:30 p.m.-3 p.m. local time and, at night, 9 p.m.-2:30 a.m. The daily trading band has been set at 5 percent on either side, and 10 percent on its debut day, while margin requirements are at 7 percent. Seven grades will be deliverable, including Dubai crude, Basrah Light and China’s Shengli. The contracts will have 36 delivery months with the first 12 months as rolling contracts. The daily cost to store crude for delivery into the Shanghai exchange is set at 0.2 yuan a barrel, or at least twice the rate elsewhere, in a move seen as deterring excessive price swings.

交易时间为当地时间上午9:00到11:30,下午1:30 到15:00,晚上21:00到凌晨2:30。原油期货交易涨跌停板幅度为5%,首个交易日的涨跌停板幅度为基准价的10%,保证金为合约价值的7%。有7种石油可进行交付,包括迪拜的原油、伊拉克的巴士拉轻质原油以及中国的胜利原油。中国的原油期货合约交割月份是36个月,最近12个月为连续合约。上海交易中心的仓储费用定为每桶0.2元人民币。

6. What’s China’s track record in commodities?


Nickel was the last major commodity to be listed there in 2015; within six weeks, trading in Shanghai surpassed benchmark futures on the London Metal Exchange, or LME. In China, speculators play a far greater role, boosting trading volumes but making markets susceptible to volatility. In early 2016, the then-head of the LME said it was possible some Chinese traders did not even know what they were trading as investors piled into everything from steel reinforcement bars to iron ore. Steep price rises relented when China intervened with tighter trading rules, higher fees and shorter trading hours.


7. Will foreigners buy in?


That remains to be seen. Overseas oil producers and traders would need to swallow not just China’s penchant for occasional market interventions but also its capital controls. Restrictions on moving money in and out of the country have been tightened in the past two years after a shock duation of the yuan in 2015 prompted a surge in money leaving the mainland.


8. Could the yuan challenge the dollar’s dominance in oil?


Not any time soon , since paying for oil in dollars is an entrenched practice, according to some analysts. Shady Shaher, head of macro strategy at Dubai-based lender Emirates NBD PJSC, says it makes sense in the long run to look at transactions in yuan because China is a key market, but it will take years. Bloomberg Gadfly columnist David Fickling argues that China doesn’t have “nearly the influence in the oil market needed to carry out such a coup.” On the other hand, paying in yuan for oil could become part of President Xi Jinping’s “One Belt, One Road” initiative to develop ties across Eurasia, including the Middle East.

据一些分析人士称,短时间内还不能,因为用美元进行石油交易已经是一种根深蒂固的做法了。总部位于迪拜的阿联酋EmiratES NBD银行旗下宏观策略中心负责人Shady Shaher表示,从长远来看,用人民币交易是有道理的,因为中国是一个重要市场,但这需要几年的时间。彭博社评论栏目Gadfly专栏作家David Fickling认为,中国在石油市场中还不具备引起这么大变化的能力。另一方面,用人民币进行石油交易或将成为中国“一带一路”主张的一部分。“一带一路”旨在连接欧亚大陆,包括中东在内。