Shanghai Crude Oil Futures Contract in 2017?

Ithaca, NY – May 16, 2017 – A majority of the world’s crude oil futures contracts are based on two benchmarks: West Texas Intermediate (WTI) and Brent. These contracts allow the buyer to receive a quantity of crude oil from the seller at a predetermined price at some point in the future. Traders attempt to profit off of the ever fluctuating price of oil by using these two contract benchmarks the most. However, China may soon be releasing its own Shanghai crude oil futures contract; a major addition to the oil market, considering China’s place in the global balance of oil.

shanghai crude

The Shanghai International Energy Exchange (INE) has attempted to establish its own crude oil futures contract before, but there have been major roadblocks along the way. A Reuters article from January 2017 announced how this contract was being “quietly shelved” due to concerns and problems. The most important of these included concerns about government control of Chinese currency, drastic price swings in other Chinese commodities; and variation of grades, prices, and quality of crude. These issues make it difficult to define a benchmark value. However, within 3 months of the Reuters piece being published, China made it clear it would attempt to release the aforementioned futures contract.

In mid-April, an article reported that the plan was revived and China is “…actively preparing and are striving to launch the product as soon as possible.” They even mention a timeline between July and October of 2017, meaning this contract could be live as soon as 2 months from now. Just today, the INE published its rules on this exchange, seen here.

shanghai crude

Why would a Shanghai crude contract matter? If China releases its own crude oil futures contract for the world to use, consistent, accurate, and reliable information on its oil inventories will become more valuable. Every week, the WTI market shifts when the Energy Information Administration (EIA) releases its weekly Cushing, Oklahoma stocks data. This information provides a snapshot for traders to understand the supply and demand balance and determine the direction of price movement. With a new contract, investors have another reason to consider Ursa’s China Oil Storage Report a must-have.

Reach out to us today if you are interested in an evaluation!