SINGAPORE The commodity
futures trade in China will be transformed by the Shanghai
Futures Exchanges (SHFEs) proposed crude oil
contract as the exchange looks at how to facilitate offshore
involvement, according to Sebastian Pang, head of energy APAC
ex-Japan at Newedge Financial Singapore Pte Ltd.
"The crude oil contract we are
talking about will be a great game-changer because there will
be a new set of rules," Pang, who is working on the design
committee of the new contract at the SHFE, told AMM
sister publication Metal Bulletin.
The crude oil futures contract
has been granted in-principle approval from authorities but
still needs final approval, Pang said.
The contract will be a physical
delivered dual-currency contract, will have an aggregate quota
for funding offshore trading, and can be traded in bonded
Metals brokers and traders are
watching SHFEs plans for crude oil futures closely
because they believe it could provide a model for the
exchanges plans in copper.
Under the draft being
considered, the contract provides two quotesdollar and
yuanand it could be a dollar-cleared or yuan-cleared
contract, or both, Pang said. "If they make it international,
it will create more demand for the renminbi, and if its
in dollars, then itll create a demand for dollars," he
The contract is now expected to
launch before year-end. It was previously expected to launch by
the end of 2012 but was delayed by political leadership changes
There are five ways for foreign
companies to trade the contract, Pang said, noting that all
must be done through an onshore entity.
"They have not thought of a
category whereby a foreign entity goes onshore and can clear;
so far as I know, its not part of the plan," he
The contract will be the
worlds first c.f.r. crude oil contract, which is "very
attractive, because when you have global surplus or shortages,
the whole world can actually start to move the marginal barrels
to or away from (China)," Pang said.
An f.o.b. contract didnt
make sense because China isnt the producer, but a
"This is a new contract, and its testing a lot of new
boundaries," Pang said.
A version of this article was first
published by AMM sister publication Metal