The launch ceremony of Shanghai crude oil futures at the Shanghai International Energy Exchange in Shanghai on March 26.
© China Daily/Reuters
Crude
oil futures started trading in Shanghai on Monday to great fanfare,
reflecting China's wish -- as the world's biggest oil importer -- to
have more control over energy pricing.
However, the ability to trade on home turf does not necessarily mean China will have a new benchmark anytime soon.
"It took 17 years for China's crude oil future trading to be launched on this day,"
Liu Shiyu, chairman of the China Securities Regulatory Commission
(CSRC), said at the opening ceremony of the Shanghai International
Energy Exchange on Monday morning, emphasizing the meaning for a country
that is the biggest consumer of oil in the world. China imported 8.4
million barrels of oil per day in 2017, surpassing the U.S.
There was also political significance to the event, with the CSRC's
Liu saying in his short opening speech that the newly appointed vice
premier and main economic adviser to President Xi Jinping, Liu He, had
handed down "important instructions" related to this new platform, and
also twice mentioning its relevance to the latest communist party
mantra.
In Hong Kong, China Petroleum & Chemical (Sinopec) Vice Chairman and President Dai Houliang vowed to "actively participate"
in the new Shanghai market during a press conference for the oil
group's latest earnings. As one of the largest traders of oil products
in China, Dai stressed that the state-owned company would increasingly
make use of the new platform in the coming days.
The Chinese government indicated its will to develop the market by
allowing foreign players to directly participate in the yuan-denominated
trading, in a country of capital controls and where stock market
trading is limited to certain specified channels.
The Ministry of Finance announced last Tuesday that it would exempt
foreign investors from taxation on profit made on crude oil futures
trading over the next three years.
Question Marks
But experts are highly skeptical that the new Shanghai market will quickly gain the clout of an international benchmark.
North Sea Brent crude traded in London and West Texas Intermediate in
New York are the current international oil pricing benchmarks. Neither
Shanghai nor any other oil futures market in Asia match them in terms of
scale or influence.
Even if trading in Shanghai becomes active and transparent, questions
have been raised over the physical delivery and storage of oil imports
going forward.
The Shanghai exchange has specifications such as the sulfur content
of the crude oil listed for trading. While seven types of oil produced
in the Middle East will be the primary deliveries, Takayuki Homma, head
of economic research at Sumitomo Corp. Global Research said, "It is uncertain whether multiple crude oils will be mixed or not."
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