Shanghai oil futures roar into action

GLENCORE BAGS FIRST TRADE AS TRAFIGURA AND FREEPOINT TAKE PART IN TRADING

Shanghai crude oil futures launched yesterday with mom-and-pop and institutional investors fuelling much higher turnover than many expected for China’s new commodity benchmark that is aimed at dominating the Asian market.

In a sign the contract has lured overseas interest, global commodity trader and miner Glencore, and big merchants Trafigura and Freepoint Commodities were among the first to trade, although regulatory hurdles and unfamiliar rules may stymie broader take-up in the near term.

The launch of China’s yuan-denominated oil futures — its first commodity derivative to be 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.

Almost 15.4 million barrels of Shanghai’s most-active September contract changed hands in the 2-1/2-hour morning session to 11:30am (0330 GMT). That initially eclipsed volumes traded in the Brent May contract, before Europe’s benchmark came alive around 0500 GMT.

“We’ve seen already this morning it appears to be a liquid contract from the off,” said David Martin, JPMorgan Chase & Co’s Asia Pacific head of global clearing, at an event for the launch in Shanghai.

Yuan-denominated trading and a blend of new rules and regulatory burdens will also likely hamper initial take-up on the Shanghai International Energy Exchange (INE), executives at a dozen banks and brokers and experts involved in the launch told Reuters.

What was a surprise to many was that Glencore — not a Chinese state oil major — executed Shanghai’s first crude deal.At the end of the morning session, Shanghai prices were up 3.92 per cent at 432.4 yuan, with 30,742 lots traded.

Brent and WTI, in contrast, were down by that time.