China finally launched its long-awaited crude oil derivative products on March 26, 2018 local time, when crude oil futures contracts began trading on the Shanghai International Energy Exchange (INE). Futures for September settlement opened at RMB440 a barrel, up from a reference price of RMB416. China, the world’s biggest oil buyer, is offering trading of RMB-denominated crude oil futures, meaning that for the first time non-Chinese residents can trade in Chinese commodity markets. Liquidity was strong on the launch day, with 40,656 contracts worth around RMB17.6 billion ($2.8 billion) filtering through the system, according to INE’s figures. The most active September contract settled at RMB429.9 a barrel, after fluctuating between RMB426.3/barrel and RMB447.1/barrel during the trading session.
Currently, crude oil futures contracts are primarily based on the U.S. dollar. The introduction of the RMB-denominated crude oil futures contracts would promote the use of China’s currency in global exchanges, helping China to realize one of its key long-term strategic objectives – internationalization of RMB. China would benefit from having benchmarks that reflect the grades of oil that are generally consumed by local refineries that are different from those underlying Western contracts.
Over the past decade, apparently, China has had a major influence in the global crude oil market due to its massive consumption of the commodity. In 2017, China surpassed the U.S. as the world’s biggest crude oil importer by taking in over 8 million barrels a day.
China is now making an attempt to exert more influence over crude oil derivative markets, aiming to set up the first Asian standards for oil deals.
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