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China launches yuan denominated Shanghai International Energy Exchange

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China has launched an oil futures markets – China International Energy Exchange (INE) – yesterday at Shanghai in a bid to challenge the dominance of Dollar $ as the global currency for oil trading. The new benchmark faces a reliability problem at this stage amongst fears of excessive speculation from Chinese investors.

Despite taking a long time coming, China finally has a yuan denominated oil futures. On Monday, 26th March 2018, crude contracts commenced trading on the Shanghai International Energy Exchange. China is now offering yuan dominated futures contracts to buyers from around the world.

Shanghai International Energy Exchange (INE) began trading oil futures yesterday. The Shanghai based exchange will deliver seven grades of crude; Upper Zakum, Basrah Light Oil, Oman Crude, Dubai Crude, Masila Crude, Qatar Marine Crude and Shengli Oil.

With the launch of yuan denominated exchange Chinese buyers will be able to lock in future prices and pay in local currency. In a first for Chinese Commodities Markets, foreign traders will also be allowed to invest in INE.

Among other consequences, the futures trading would grant China a definite say in the pricing of international oil prices. In addition to that, the Yuan denominated exchange would help the Chinese currency gain a share in the global oil trades.

The push for oil futures gained impetus in 2017 when China surpassed the U.S. as the world’s biggest crude importer. The Asian nation’s purchases reached a record high in January.

Trading hours for the new exchange are: 9 a.m.-11:30 a.m., 1:30 p.m.-3 p.m. local time, and at night, 9 p.m.-2:30 a.m. The daily trading band has been set at 5 percent on either side, with 10 percent on Monday (inaugural day), while margin requirements have been set at 7 percent. 

The contracts will have 36 delivery months with the first 12 months as rolling contracts. The daily cost to store crude for delivery into the Shanghai exchange is set at 0.2 yuan a barrel, or at least twice the rate elsewhere, in a move seen as deterring excessive price swings.

Oil Analysts and investors, however, fear that concerns abound with the launch of new exchange. Fears of excessive speculations, the reliability of newly established benchmark will need a significant amount of time to attract investors from across the globe.

Posted on: 2018-03-27T10:57:00+05:00