China Pushes Global Oil Trading To All-time High In 2018

This year’s crude oil futures trading activity is on track for a record high, as trading volumes in China’s new yuan-denominated futures contract is offsetting lower activity in the world’s top benchmarks and most active contracts, Brent and WTI, Reuters reports, citing data from exchanges.

The Chinese oil futures, launched in March this year on the Shanghai

International Energy Exchange (INE), are still seen mainly as a Chinese market for Chinese traders who don’t trade on market fundamentals. The futures contract struggles to become truly international for market participants, while inconsistent trading volumes are not helping international traders to use the Shanghai futures as a financial hedge.

Analysts have also flagged storage costs in China as one of the problems that traders could face in the delivery mechanism of the Chinese oil futures contract. Storage costs in China are much higher than elsewhere. The reason for the higher cost is limited storage capacity availability and the requirement that the cargo be stored at a specific storage facility rather than at any available.

Nevertheless, in its first year of launch, the Chinese crude oil futures contract has already taken a 6-percent market share from the most active contracts, WTI and Brent.

According to data from exchanges quoted by Reuters, the trading volumes of Brent and WTI dropped to 207.2 million lots of 1,000 barrels each this year through December 10, compared to 220.17 million lots traded last year. Trading volumes in WTI and Brent are set to decline in 2018 for the first time since 2013.

But the Shanghai crude oil futures volume trade of 13 million lots until December 10, added to the WTI and Brent trading volumes, will push the oil futures trading globally to a record high this year.

“If a new exchange achieves 6 percent market share vs the two incumbents within the first year of trading that’s fairly impressive,” John Driscoll, director of Singapore-based consultancy JTD Energy, told Reuters.

To compare, the year in which the Brent futures contract started trading in 1988, Brent took a 3.1-percent share from then-dominant WTI contract.

By Tsvetana Paraskova for Oilprice.com