China’s crude futures kicked off to a roaring start on Monday as western traders and Chinese majors eagerly traded the world’s newest financial oil instrument, which many expect to become a third global price benchmark alongside Brent and WTI crude. Global commodity trader and miner Glencore, and big merchants Trafigura [TRAFGF.UL], Freepoint Commodities and Mercuria were among the first to trade the new contract, even as concerns remain that smaller overseas investors may struggle with unfamiliar rules and complex regulation. The launch of the yuan-denominated oil futures <0#ISC:> – China’s first commodity derivative open to foreign investors – marked the culmination of a decade-long push by the Shanghai Futures Exchange (ShFE) to give the world’s largest energy consumer more power in pricing crude sold to Asia.
With major overseas traders displaying a strong appetite to punt in China’s vast derivatives market, Shanghai’s turnover challenged Brent volumes during Asian hours, reflecting the potential for arbitrage trade with oil markets in the United States, Europe, and Oman. “Whether this will have any real bearing on the other crude benchmarks, I’m not quite sure, but traders love a new toy, so I applaud China for bringing in something that could stoke up some volatility,” said Matt Stanley, a fuel broker with Freight Investor Services (FIS) in Dubai.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.
The 15.4 million barrels done in Shanghai’s 2-1/2-hour morning session initially topped the Brent May crude contract, before Europe’s benchmark came alive around 0500 GMT <0#LCO:>.