Published: Tue, March 27, 2018
Money | By Ethel Goodwin

China extends its influence on the crude oil market to pricing

China extends its influence on the crude oil market to pricing

Earlier in the session, prices were lifted by statements from Saudi Arabia, the de-facto leader of the Organization of the Petroleum Exporting Countries (Opec), that production cuts that have been in place since 2017 may be extended into 2019, as well as concerns that the U.S. may re-introduce sanctions against Iran.

SHANGHAI, March 26 (Xinhua) - China launched trading of crude oil futures contracts at the Shanghai International Energy Exchange on Monday in its steady move of opening up the financial sector.

Iraq, the second biggest producer within the Organization of the Petroleum Exporting Countries (OPEC) said on Monday that it also supports the producer cartel's agreement to cut oil output.

"The recent rally in oil prices might have taken some by surprise as the underlying fundamental picture does not justify Brent being close to $70 a barrel".

On the other hand, global stocks, which have proven to be a significant influence on crude prices, came off six-week lows due to expectations that the USA and China will soon begin trade talks rather than undertake an all-out trade war.

Russian Federation needs much lower oil prices to balance its budget than OPEC's leader Saudi Arabia, which is preparing a stock market listing for national energy giant Aramco this year and would hence benefit from pricier crude.

An agreement between Opec and some other producers, led by Russian Federation, to withhold supplies in order to prop up prices came into force in January 2017, and is now scheduled for expiry by the end of this year.

U.S. oil output has already jumped by a quarter since mid-2016 to 10.4 million barrels per day (bpd).

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.

Singapore-based brokerage Phillip Futures said that "surging production levels persist" in the US.

For China's regulators, the hope is that the futures will serve as a risk management tool for its oil companies, act as a price reference for industry participants, as well as help open the country's financial markets.

Brent volumes have been lower than usual as much of Europe is already on holiday for Easter. "This view is based on the simple fact that non-OPEC oil supply growth will trump the increase in global oil demand this year", PVM Oil Associates analyst Tamas Varga said.

Shanghai crude fell 1.4% from the overnight settlement of 433.8 yuan ($69.33) a barrel to 427.6 yuan ($68.34) at 4.09am GMT on Tuesday. Nevertheless, the existing price benchmarks - Brent and WTI crude - are both in dollars, and importers across the world must buy dollars in order to conduct oil deals.

Like this: