China aims to challenge Brent, WTI oil with crude futures launch

China's first oil futures off to a flying start as Beijing vies for pricing power

The launch of the oil futures denominated in China's renminbi currency, also known as the yuan, is China's first commodity derivative open to foreign investors.

Shanghai crude oil futures opened up more than six per cent on Monday with nearly 20 million barrels of the most-active September contract changing hands.

Two of the world's biggest oil traders gave China's crude futures contract a go on its long-anticipated trading debut.

About 413 participants joined the bid collection session in the morning, which include state-owned oil companies - Unipec, CNOOC, Sinochem, Northern Petroleum, independent oil companies and refineries Twinace, Shandong Wonfull, and foreign oil trading companies Trafigura, Glencore, and Freepoint, according to local media. 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 USA benchmarks. September Brent and WTI traded near $68.22 a barrel and $63.94, respectively, on Monday.

Concerns of a looming trade dispute between the United States and China had also weighed on global markets.

Financial oil markets have always been dominated by Europe's Brent and America's WTI, despite Asia being the world's biggest and fastest growing oil consumer, has so far not had a benchmark.

But analysts said Chinese capital controls will likely discourage hefty foreign engagement, as will wariness of the often wild gyrations in China's still relatively immature financial markets.

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 U.S. oil production which has soared and is fast approaching 10 million bpd.

That's different to worldwide exchanges, like the CME, which uses a ratio based on an investor's traded volume.

Brent for May settlement rose to $70.97 a barrel on the London-based ICE Futures Europe exchange.

The contract for delivery in September opened about 6 per cent higher at 440.20 yuan (US$69.70) a barrel at 9:01am.

At 9:24 a.m. (0224 GMT) prices were up 3.29 per cent at 430 yuan, with 19,122 lots, equal to 19.1 million barrels of oil, traded.

Yesterday's higher-high, lower-close chart pattern does not mean the trend is getting ready to turn lower, but it does indicate the selling is greater-than-the-buying at current price levels and that the market may be ripe for a short-term correction in order to alleviate the short-term "overbought" conditions.

While both contracts have been gaining, Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Illinois said Brent has outperformed WTI. Contracts set up by the Dubai Mercantile Exchange a decade ago have not matched Brent or WTI, traded on the Intercontinental Exchange and the New York Mercantile Exchange (NYMEX) owned by CME Group.

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