China to launch new crude oil benchmark

Singapore, September 10

China plans to launch a yuan-denominated international benchmark for crude oil futures this year aimed at the Asian market, an industry source said today.

The contract will be traded at the Shanghai International Energy Exchange (INE) and will be a price reference for medium sour crude, a variety favoured by Asian players and imported mainly from the Middle East, said the source, who asked not to be named.

It has a higher sulphur content than the existing benchmarks — West Texas Intermediate (WTI) traded in New York and Brent traded in London — both classified as light sweet crude.

Crude oil futures are a hedge against price volatility. Prices move based on supply and demand expectations as well as geopolitical concerns.

The Chinese contract will be traded in lots of 100 barrels, said the source, who attended a seminar conducted in Singapore today by INE for traders and brokers to drum up interest. WTI and Brent benchmark contracts come in lots of 1,000 barrels.

“There was no launch date given but the timetable is this year,” the source told AFP.Daniel Ang, an investment analyst with Phillip Futures in Singapore, said the smaller size of the lots will allow retail investors to participate — on top of big institutional players — and boost volumes.

Ang, who closely tracks the oil market, said the new benchmark is unlikely to hurt both WTI and Brent in terms of prices but it could affect their volumes.

He said the Shanghai contract would be a better hedge for players in the region and that he expects interest in China benchmark from Asian markets like Japan, South Korea and Southeast Asia.