Concern about Middle East tension pushes up oil prices

Reuters

China's ultimate goal is to create a crude oil benchmark in Shanghai that can help the country wrest some pricing power away from worldwide competitors such as Intercontinental Exchange's Brent contract and the New York Mercantile Exchange's WTI.

China's launch on Monday of its crude futures exchange will improve the clout of the yuan in financial markets and could threaten the worldwide primacy of the dollar, argues a new report by Hayden Briscoe, APAC head of fixed income at UBS Asset Management.

Shanghai crude oil futures launched on Monday with mom-and-pop and institutional investors fuelling much higher turnover than many expected for China's new commodity benchmark that is aimed at dominating the Asian market.

Straits said it brokered the first trade for Glencore and cleared the deal through Xinhu Futures.

Foreign participants in trading can make funding in a foreign exchange at a rate in the China Foreign Exchange Trade System. Supplied oil will be located in seven storages situated in coastal areas of the China provinces of Zhejiang, Shandong, Guangdong, Liaoning, and in the Shanghai deep-water port.

According to Wood Mackenzie, the impact will be felt on the pricing of crude oil from Iran and Oman, the current largest suppliers to China.




Away from the physical side of things, you need a well-honed market structure that allows producers, consumers and traders to hedge exposure via futures and options.

Oil prices settled slightly lower on Tuesday, only to fall in post-settlement electronic trading as stocks slumped and industry group data showed a surprising increase in crude inventories. Treasury Secretary Steven Mnuchin said on Fox News that he's optimistic the USA can reach a truce with China on trade.

The jump came after Brent futures for May delivery opened above $70 per barrel for the first time since January on expectations OPEC-leader Saudi Arabia may extend supply cuts into 2019, as well as over concern that the United States may re-introduce sanctions against Iran.

In Asia, Shanghai crude oil futures debuted strongly in terms of volume as investors and commodity merchants bought into the world´s newest financial oil trading instrument. By 11:14 a.m. (0314 GMT), 3,599 lots of the most-active June contract had traded, equivalent to 3.6 million barrels of crude. China introduced domestic crude futures in 1993, only to stop a year later because of volatility.

The American Petroleum Institute (API) has reported a major surprise build of 5.321 million barrels of US crude oil inventories for the week ending March 23, with the market expected to respond by erasing last week's gains.

While both contracts have been gaining, Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Illinois said Brent has outperformed WTI.

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