Finance

Oil Holds Above $65 as Easing Trade Tensions Offset Supply Fears

Oil Holds Above $65 as Easing Trade Tensions Offset Supply Fears

The world's biggest oil buyer is offering yuan-denominated futures that foreigners can buy and sell - a first in Chinese commodities.

Shanghai crude oil futures opened up more than 6 percent with nearly 20 million barrels of the most-active September contract changing hands in the first 25 minutes as China debuted its oil benchmark.

The hope that behind-the-scenes talks between the USA and China will prevent a looming trade war between the world's two biggest economies also supported global markets, including crude oil futures.

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.

The new contract reportedly attracted foreign investors including Glencore and Trafigura, as well as Freepoint Commodities, BOCI Global Commodities and North Petroleum International. With this, the country, which is also the world's largest buyer of crude oil is trying to gain more control over pricing, challenging European and United States benchmarks. A spread of producers also creates stability, preventing situations like Brent saw a year ago, where the failure of a single pipeline risks sending prices spiralling out of control.

The front-month September delivery contract, which started trading Monday, will expire on August 31, allowing plenty of time - more than five months - for market participants to take a position and the new derivatives market to build sufficient liquidity.




The most-active September contract opened at 440.4 yuan per barrel from a reference point of 416 yuan, and jumped to as high as 447.1 yuan in the first few minutes.

"The government (in Beijing) seems determined to support it, and I hear a number of firms are being asked or pressured to trade on it, which could help", said Jeff Brown, President of energy consultancy FGE.

Over the first 24 hours of its trading, Shanghai's spot crude volumes made up 5% of the global market, versus 23% for Brent and 72% for WTI.

They mainly trade higher-quality light sweet crude oil, while the yuan contracts on the Shanghai International Energy Exchange involve mainly medium-sour crude.

For other parts of the stock market, sentiment was still soured by fears of full-blown trade war between the United States and China. By 11:14 a.m. (0314 GMT), 3,599 lots of the most-active June contract had traded, equivalent to 3.6 million barrels of crude. Brent is slightly higher, while WTI is trading flat. The market analysts are looking for consensus of 0.05, compared to 0.12 last month.

Once the exchange has established the prices of marker crude oil grades in China, these prices would have to be reflected in prices offered by suppliers in the Middle East and USA.


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