CHINA’S GLOBAL MARKET SHARE ON THE RISE
Shanghai crude futures trade challenging dominance of Western price-markers
THE launch of China’s first crude futures contract in Shanghai has added a long-awaited Asian benchmark to the global oil sector, challenging the dominance of Western price-markers and threatening ramifications far beyond the energy industry.
Since their launch in March, Shanghai crude futures have stolen market share from the incumbent benchmarks — Europe’s Brent and United States West Texas Intermediate — which trade oil derivatives worth trillions of US dollars every year.
Volumes have far bypassed other crude futures, such as those that the Dubai Mercantile Exchange launched in 2007.
This shift in oil markets could have far-reaching implications, including in foreign exchange markets.
“It’s significant. Given the prominence of China in oil markets, we could see more use of the Shanghai contract,” said Stephen Innes, head of Asia-Pacific trading at futures brokerage Oanda, here.
He said foreign exchange markets were also “taking notice of any yuanification”.
Since launching in late March, front-month volumes in Shanghai crude futures have risen to trade 2.8 million lots of 1,000 barrels in July.
This gave the contract a market share for July of 14.4 per cent, compared with 28.9 per cent for Brent and 56.7 per cent for WTI crude futures.
“Shanghai crude has good liquidity due to its high volatility and its correlation with international oil futures. It has become a good investment for speculators,” said Zhang Huiyao, deputy general manager for crude oil trading at Huatai Futures in Guangzhou.
Despite this early success, operator Shanghai International Energy Exchange is playing it cool.
“China’s crude oil futures remain behind the mature contracts in Europe and the US,” said President Jiang Yan this month.