Oil briefly hits US$71, with U.S. supply, Middle East in focus

29 March, 2018, 01:55 | Author: Lora Ball
  • Shanghai crude oil futures jump more than 6%

China's ultimate goal is to create a crude oil benchmark in Shanghai that can help the country wrest some pricing power away from global competitors such as Intercontinental Exchange's Brent contract and the New York Mercantile Exchange's WTI.

Oil prices settled lower Monday, pulling back from the multiweek highs scored last week, with traders weighing trade tensions between the USA and China, as China marked the start of trading for its own crude futures contract.

May West Texas Intermediate crude lost 33 cents, or 0.5%, to settle at $65.55 a barrel on the New York Mercantile Exchange. Singapore-based brokerage Straits Financial Services said it brokered the first trade for Shanghai crude futures for Glencore and cleared the deal through Xinhu Futures.

Still, China offers the potential for a deep, liquid market, buoyed by an explosion of interest from mom-and-pop investors that has supported its vast commodities derivative markets from apples to iron ore in Shanghai, Zhengzhou and Dalian.

"First-day trading of new contracts was expected to be active, but it was just a first step for China to gain pricing power", said Huang Lei, an independent commodity futures market analyst.

Although the exchange will have an overnight trading session to match late European and early US trading, it will close for more than six hours before trade resumes in Beijing.

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Last year, China became the world's biggest buyer of foreign oil, surpassing the U.S. Yuan-denominated contracts are expected to boost the use of yuan in worldwide trade in the long run.

Supply curbs by Opec, Russia and their allies have helped push Brent above US$70 this year for the second time since late 2014, but analysts said this strength may not persist long. Still, concerns over American shale oil remain, with analysts forecasting a gain in US crude inventories last week. The global benchmark traded at a $4.56 premium to WTI. Brent crude futures were at $69.65 per barrel, down 46 cents, or 0.7 per cent.

WTI is now trading above $64.60.

"In the short-term, we believe price fluctuations will reflect domestic crude oil supply and demand". The contract closed at 429.9 yuan per barrel ($68.22).

Brent and WTI, in contrast, were down by that time, weighed down by concerns over a looming US trade dispute with China.

The crude futures are being traded on the Shanghai International Energy Exchange, a 5 billion yuan subsidiary set up by the Shanghai exchange in the city's free-trade zone in late 2013. Some 18,540 lots have reportedly been sold and purchased so far.

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