Yuan crude futures internationalized

The Chinese futures market took another step on Monday toward internationalization with the unveiling of yuan-denominated crude oil future contracts, the first of its kind open to overseas investors.

The futures, under discussion for nearly 17 years, will set a crude oil pricing benchmark that reflects supply and demand in China and Asia, said Jiang Yang, vice chairman of China Securities Regulatory Commission.

The September crude futures contract that registered the largest trading volume on Monday, with the transaction amount reaching 17.64 billion yuan ($2.8 billion), saw its price close at 429.9 yuan per barrel, up 3.34 percent.

With this step, China is taking the lead with innovative measures to make up for the lack of a benchmark for crude oil in Asia, said Li Li, research director at energy consulting firm ICIS China. Also, the crude oil futures will more accurately reflect oil prices in the region, giving companies in the real economy a bargaining tool when importing crude, Li said.

During opening day trading, overseas companies including Glencore and Trafigura were among the first to trade. These are considered industry leaders, while not being industry giants.

Overseas institutional investors' income from crude oil futures transactions will be temporarily exempted from the enterprise income tax. That is one of the major elements attracting overseas investors, said Wang Xiao, director of the crude oil research department at Guotai Junan Securities.

"Given the number of large oil, chemical and trading groups taking part in the first trading day, we can see that the influence of Chinese crude oil futures has been recognized by the global market," Wang said.

Still, energy giants such as BP and Shell are taking a wait-and-see attitude, Li said.

Zhang Hao, chairman of Citic Futures, said that the Shanghai crude oil futures will fill a void left by the West Texas Intermediate benchmark from the United States and Brent from the United Kingdom in terms of trading hours, creating a 24-hour trading mechanism.

The growth in demand for crude oil by China has remained the world's largest since 2009, according to the Chicago Mercantile Exchange. It overtook the United States as the world's largest net importer of crude oil and petroleum products in 2014.

Jonty Rushforth, senior director of the energy price group at S&P Global Platts information service, said Shanghai crude oil futures could be very successful if administrators are persistent, flexible and willing to experiment.

"It could also help consolidate the renminbi's position in the international oil market if more traders from outside China choose to trade on the Shanghai futures exchange," he said.