OPEC MOMR August 2017
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Monthly Endnotes

OPEC Monthly Oil Market Report – August 2017

89

China appears ready to launch

long-delayed crude futures market

China is taking steps to establish a long-awaited crude futures market. A spokeswoman at the Shanghai

International Energy Exchange (INE) told Reuters that the INE is finalising technical issues and hopes to

launch the crude futures contract with this year.

While plans to set up a crude futures exchange have been ongoing for many years, recent moves to

establish the necessary trading infrastructure indicate that it might happen before the end of this year. More

than 6,000 trading accounts have also been opened and 150 brokerage firms have been registered. The INE

spokeswoman said that the exchange has already conducted four test trials to ensure that the exchange is

technically ready.

Earlier reports from the exchange indicated that the INE contract size will be set at 100 barrels, compared to

a standard size of 1,000 barrels for NYMEX WTI, ICE Brent and DME Oman. This is seen as an effort to

attract small local investors. Whereas commodity futures’ trading elsewhere is dominated by institutional

investors, in China, smaller investors play the major role. Indeed, some three-quarters of the trading

accounts set up for the INE are reportedly held by individual traders.

Graph 12 - 2: Share of world crude oil imports

Graph 12 - 3: China oil production and demand

Efforts to establish a crude futures market in China reflect the country’s growing weight in the international oil

market. Last year, China accounted for 17% of global crude oil imports, up from 7% a decade earlier and

only one percentage point behind the United States, the world’s top importer (

Graph 12 – 2

). China’s imports

reflect a considerable rise in demand at a time when the country’s oil production has declined

(

Graph 12 – 3

).

One characteristic that makes the INE contract different from other major crude benchmarks is that it is a

demand rather than supply-oriented contract. NYMEX WTI, ICE Brent and even DME Oman to some degree

are linked to a specific crude streams for sale, whereas the INE contract will be for crude for purchase in

China as a demand rather than production centre. Earlier information from the exchange said that the

contract will include a physical delivery mechanism that is planned to accept seven different crudes including

Dubai, Oman, Upper Zakum, Yemen’s Masila, Qatar Marine, Basrah Light and China’s Shengli.

Challenges to setting up a futures exchange are considerable and securing market acceptance is a key

hurdle. China has had success in establishing equities markets and commodity futures markets, although

volatility has been a concern for Chinese regulators who have taken an active role in addressing what they

perceive to be excessive speculation. The exchange has set a low daily price fluctuation limit of 4%, half that

of other commodity markets in China. Contract will also trade in yuan, rather than US dollars, the currency

used in the major crude futures markets as well as in physical oil trade across the globe.

17%

18%

10%

7%

49%

China

US

India

Japan

Rest of World

Source: OPEC Annual Statistical Bulletin.

0

2

4

6

8

10

12

1995

1998

2001

2004

2007

2010

2013

2016

mb/d

China oil production

China oil demand

Source: OPEC Annual Statistical Bulletin.