Shanghai takes its first step on long road to becoming oil price benchmark
Futures Exchange faces tough competition from Singapore and must win trust of foreign traders
Shanghai's ambitions to become a premier price benchmark for oil traded in Asia will take years to accomplish given the dominance of Singapore in the industry, but a crude futures contract traded in the city cannot be ignored given that China will become the world's top net importer of oil in 2014, analysts said.
Jiang Yang, vice-chairman of the China Securities Regulatory Commission, told a forum last month the Shanghai Futures Exchange would start trading the energy contract this year. Following nearly four years of drawn-out preparations, Beijing is determined to take a substantial step to gain pricing power in the global oil market.
"It is a lot of work. The Shanghai futures exchange has to convince foreign traders that the oil trading platform is a fair and transparent market with a complete set of rules," said Citic Futures analyst Liu Yang.
Traders wouldn't ignore [it] owing to the mainland's role as a major oil consumer
An oil pricing benchmark will not be created in Shanghai unless the city can attract explorers, refiners, users and traders outside the mainland to take part in trading.
"Singapore is an established market," commodity trader Danny Deng said. "But I believe all foreign traders wouldn't ignore the Shanghai contract owing to the mainland's role as a major oil consumer."
China is the world's second-largest oil consumer, trailing only the United States. But the US Energy Information Administration (EIA) predicts the world's most populated country will surpass the US as the largest net oil importer by the end of 2014.
Last year, China's oil imports increased 4 per cent to 280 million tonnes.
The EIA estimated that China would import 6.6 million barrels of crude oil per day in 2014, compared with 5.5 million barrels for the US.