Crude oil modestly higher as OPEC/Russia consider long-term deal

Crude oil modestly higher as OPEC/Russia consider long-term deal

China yesterday launched its first-ever crude oil futures contract as the world's biggest oil buyer seeks to wield greater power over pricing and challenge the benchmarks in the USA and Europe. On the other hand, the scholar predicted that once China's futures market becomes "more mature and transparent", the Shanghai oil futures contract will emerge as a full-fledged benchmark for global oil transactions.

Trade tensions appeared to ease a bit on Monday, however, as The Wall Street Journal reported (http://www.marketwatch.com/story/us-china-said-to-be-talking-behind-the-scene-to-avoid-trade-war-2018-03-25) that China and the us have quietly started negotiating to improve USA access to Chinese markets.

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.

"We prefer to watch for a while", said one Weifang-based independent refiner.

Global commodity trader and miner Glencore, and big merchants Trafigura, Freepoint Commodities and Mercuria were among the first to trade the new contract, even as concerns remain that smaller overseas investors may struggle with unfamiliar rules and complex regulation. The country imported 420 million tonnes of crude oil in 2017, ranking first in the world.

Lower crude prices have played a part as to why not earlier.

"If the demand for (yuan contracts) came at the expense of the United States dollar, there is always a chance, however slim, that the Chinese yuan could displace the United States dollar as the main petro-currency".




Futures for September settlement opened at 440 yuan a barrel, up from a reference price of 416 yuan.

At 1122 GMT, May WTI crude oil is trading $65.82, up $0.27 or +0.41% and June Brent crude oil is at $69.78, up $0.26 or +0.37%.

Away from the physical side of things, you need a well-honed market structure that allows producers, consumers and traders to hedge exposure via futures and options.

The jump came after Brent futures for May delivery opened above $70 per barrel for the first time since January on expectations OPEC-leader Saudi Arabia may extend supply cuts into 2019, as well as over concern that the United States may re-introduce sanctions against Iran.

At the end of the morning session, Shanghai prices were up 3.92 per cent at 432.4 yuan, with 30,742 lots traded. The market analysts are looking for consensus of 0.05, compared to 0.12 last month.

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 US and China will soon begin trade talks rather than undertake an all-out trade war.

These and other factors mean the contract may have a "hard time" building correlations with Brent and WTI that would make arbitrage possible, said Albert Helmig, chief executive of financial consultancy Grey House and a former vice chairman of NYMEX.

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