China opens domestic crude futures market

Most of China's imported crude (about 600,000 barrels a day) is DME Oman grade, which traded at a discount of about $2.50 a barrel to Brent.

The contracts may not only help wrest some control over pricing from the main worldwide benchmarks, but yuan-denominated contracts could also promote the use of its currency in global trade-a key long-term goal for Asia's biggest economy.

The launching took place at the Shanghai International Energy Exchange with the contract SC 1809 at the initial Price of 440 yuans per barrel (69.54 US dollars). The contracts, which are open to foreign investors, end years of delays and setbacks since China's first attempt to list the securities in 1993.

"Prices assessed at the Shanghai exchange will reflect China's crude supply and demand", said Sushant Gupta, research director at energy consultancy Wood Mackenzie.

The Shanghai International Energy Exchange launched trading of yuan-denominated crude oil futures contracts on Monday.

China's desire to open a domestic market to trade futures has grown as the country's crude imports have boomed.

This takes the INE closer to providing the range of crude oil trading activities offered in London, New York, Singapore and elsewhere, but with the added advantage of being on the doorstep of the world's largest import market.

The most-active September contract opened at 440.4 yuan ($69.78) per barrel versus a reference point of 416 yuan, jumping as high as 447.1 yuan ($70.85) in the first few minutes. "I still think there is a general reluctance from global investors to trade Chinese-based contracts".

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Futures contracts are used to fix prices today for later delivery, usually within 60 days.

The exchange said that foreign companies, including Glencore PLC and Trafigura Group, participated in the debut via brokers.

The country also hopes that yuan-denominated futures contracts will help its currency play a bigger role in the global economy.

Crude oil futures slipped on Monday, but losses were capped by a rebound in stock markets and escalating Saudi-Iran tensions.

The early involvement of big global traders was a morale boost to the fledging market, but state oil majors like PetroChina and Sinopec are expected to provide a significant amount of liquidity in the long-term.

At 9:56 a.m. (0256 GMT), Shanghai prices were up 4.4 percent at 434 yuan, with 24,132 lots traded.

Since the 1970s, the oil trade has nearly entirely been conducted in U.S. dollars. This is especially important amid the ongoing tariff war between the USA and China.

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