Chinese oil contract to rival US WTI and UK's Brent is born

Reuters

Reuters

US West Texas Intermediate (WTI) crude futures were at US$65.59 a barrel at 0700 GMT, down 29 US cents, or 0.4 per cent, from their previous close.

Oil's decline Monday was "simply profit taking after the large upward move last week, as well as the fact that around $70 Brent and $66 WTI have been the ceiling for several months now", Michael Corley, president of Mercatus Energy Advisors, told MarketWatch.

Brent and WTI, in contrast, were down by that time, weighed down by concerns over a looming US trade dispute with China. "Refinery maintenance is in full swing", causing "big builds in crude-oil stocks and big draws in products", he said.

Looking further ahead, Wood Mackenzie felt that this would also establish the local regional benchmark for negotiations of spot or term crude oil prices in other markets, such as Japan and South Korea.

Although the exchange will have an overnight trading session to match late European and early USA trading, it will close for more than six hours before trade resumes in Beijing.

State-run Sinopec Corp, Asia's top refiner, said last month it expected to boost its US crude oil imports this year to more than 10 million tonnes, or 200,000 bpd.

In Asia, Shanghai crude oil futures saw their third day of trading continuing with high volume but also volatility. "Prices assessed at the Shanghai exchange will reflect China's crude supply and demand", he said, adding that its independence from movements in Brent and WTI "could provide new arbitrage opportunities for traders".

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Stephen Innes, head of trading for Asia-Pacific at futures brokerage Oanda in Singapore, said there was "considerable resistance" to extending the deal as current, or higher, prices could entice even more U.S. shale producers to come back online.

For China's regulators, the hope is that the futures will serve as a risk management tool for its oil companies, act as a price reference for industry participants, as well as help open the country's financial markets.

The price of Brent hit $71 per barrel in the middle of January, despite surging production by the United States, which is offset by the production cuts led by the Organisation of Petroleum Exporting Countries (OPEC) and Russian Federation.

Speculative retail and institutional investors drove much of the launch-day's liquidity, said Chen Tong, Shanghai-based senior crude analyst at First Futures.

Nearly 30,000 lots of the most-active September contract, had traded, equivalent to about 15 million barrels of crude.

WTI is now trading above $64.60.

The contract for September delivery slipped on the Shanghai International Energy Exchange after closing at 429.9 yuan a barrel in its debut on Monday.

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