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China’s First Crude Oil Futures Contract to Debut on March 26

By Liu Caiping and Denise Jia

China will launch its first yuan-denominated crude oil futures contract next month, a long-waited move aimed at boosting the pricing power of the world’s biggest oil buyer.

The contract will make its debut on March 26 at the Shanghai International Energy Exchange (INE), a subsidiary of the Shanghai Futures Exchange, Chang Depeng, a spokesman with the China Securities Regulatory Commission (CSRC), told a press conference on Friday.

The exchange, registered in Shanghai’s free trade zone, will allow foreign investors to trade the new oil contract. That’s a first for China’s commodities markets and a move many market participants expect to shake up the international futures oil market.

The contract will feature the typical Middle Eastern grades known as “medium sour” crude oil. West Texas Intermediate (WTI) and London’s Brent are mainly traded on the New York Mercantile Exchange and the Intercontinental Exchange, which are the global benchmarks commonly used to determine oil prices.

An INE executive said medium sour crude oil was chosen as the underlying product because it makes up a large part of China’s crude imports and ample supply exists.

China’s crude oil imports rose 10% to a record of 420 million tons in 2017, boosting China past the U.S. as the world’s biggest crude importer, according to data from the General Administration of Customs. China also raised its 2018 crude oil import quota for the country’s independent refiners by 55% over 2017.

About half of China’s crude imports are medium sour crudes from the Middle East. Having a yuan-denominated oil futures benchmark that reflects the grades of oil that are mostly consumed by local refiners is expected to help Chinese buyers to gain some control over pricing.

The launch of oil futures contract is part of a broader move by the Chinese government to bring in more foreign investors to its commodities exchanges and expand the country’s influence in global markets.

Earlier this month, the Dalian Commodity Exchange said it has drafted rules to allow foreign investors to trade its iron-ore futures.

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