Finally, after numerous delays, oil futures trading in China is set to start later this year. As a result, China, who is one of the world’s top consumers of oil, will have a bigger say in Asian oil pricing as well as an entry into a trade that’s worth trillions of dollars on a daily basis.
Based in Shanghai, the International Energy Exchange has said that it is currently working on finalizing some technical issues. Previously mentioned, this is significant news as it comes after years of delays.
As of right now, there are more than 6,000 trading accounts opened, and almost 75% of which are individual trader accounts. It’s important to note that, universally, the oil futures trading market is run by institutional investors. However, in China, it seems to be the opposite. To date, there are probably 100 million individual traders (“pajama traders”) who account for 80% of the turnover in the Chinese equity market (this market is worth roughly US $8 trillion).
That said, aside from individual traders, local energy companies and teapot refiners have also opened accounts. For instance, PetroChina (SHA:$601857) has opened two and Sinopec (OTCMKTS:$SNPMF) has set up a special trading unit.
In addition, there are about 150 brokerages that have signed up for the oil futures contract, including the local divisions of UBS and JPMorgan, and the INE exchange has said that it is looking to attract other foreign investors as well.
As reported by Reuters, there are a number of prospective foreign traders that have reservations because the Shanghai futures will be priced in yuan. Also, foreign traders are worried about the daily price fluctuation limit (4%). Seeing as there is no way to reset price limits after a massive international movement, the Chinese futures could, as Reuters noted, freeze while prices around the globe continue moving.
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