China took a step closer to adding oil futures to its domestic commodities markets as the world’s second-biggest consumer seeks greater influence in determining the price of raw materials.
The Shanghai International Energy Exchange will start yuan-denominated crude futures in the city’s free-trade zone at the end of this year, Lu Feng, an official at the bourse, said at a conference Friday.
The contract will trade in 100-barrel lots, with an American Petroleum Institute gravity of 32 degrees and sulfur content of 1.5 percent, he said.
As the world’s largest user of energy, metals and grains, China is seeking to extend its clout over prices by opening up trading to a larger pool of investors with its own contracts.
The nation, which overtook the US as the leading crude importer in April, is now pushing to establish a benchmark price for oil in Asia after starting gold trading in the free-trade zone last year.
“China is paving the way to having its own complete financial trading platform,” said Gordon Kwan, the Hong Kong-based head of regional oil and gas research at Nomura Holdings Inc.
Foreign investors won’t take part “initially until they’ve seen that it’s a liquid market.”
The free-trade zone in Shanghai started as a testing ground for liberalizing interest rates and boosting the yuan’s role in global transactions.
China is pushing to reduce controls over the movement of capital across its borders after policy makers pledged to carry out the widest expansion of economic freedoms since the 1990s.
China’s contract will be delivered to bonded warehouses, most of which will be located around the country’s main oil-import ports, said Lu.
It will have a daily price-fluctuation limit of 4 percent and a minimum margin requirement of 5 percent. The domestic Shengli crude and six different Middle Eastern grades have been chosen for initial trading, he said.
The trading rules are pending final approval from the government.
The bourse, a unit of the Shanghai Futures Exchange, said in March that it will allow foreign investors to transact through agents that have net capital of at least 30 million yuan ($4.8 million) or the equivalent in foreign currency.
Foreign entities that don’t trade through agents should have a minimum of 10 million yuan of net capital or the equivalent, according to draft rules published on its website.
China’s plans for oil futures trading go back more than two decades, with the government introducing a domestic crude contract in 1993 and stopping a year later amid an overhaul of its energy industry.
The Shanghai Gold Exchange started trading bullion in the city’s free-trade zone in September, giving foreign investors direct access to its precious metals market for the first time.
With the start of nickel and tin trading in March, the Shanghai Futures Exchange now offers the same main contracts as the London Metals Exchange, the world’s biggest such bourse.