Commodities Buzz: Chinese Crude Oil Futures Could Become Asian Benchmark For The Commodity

As Asia-Pacific oil demand continues to grow, some market participants believe the region needs an oil price benchmark based on local supply and demand conditions, noted the US Energy Information Administration (EIA) in a latest update. Last month marked the beginning of trading for the new Shanghai crude oil futures contract in China. For the Shanghai contract to become an accepted regional benchmark, it will have to attract a wide variety of market participants, and its usage for price discovery must be established.

Although North America and Europe each have a widely traded oil futures contract—West Texas Intermediate (WTI) and Brent, respectively—the Asian market has yet to develop a widely traded benchmark contract. Even though some might consider the Dubai Mercantile Exchanges Oman futures contract to be representative of the Asian crude oil market, its daily traded volume and open interest (number of contracts outstanding) have remained at low levels since its inception in 2007, indicating it is not actively used among market participants.

The Asia and Oceania region represented more than 35% of global petroleum and other liquid fuels demand in 2017, an increase from the 30% of petroleum demand the region represented in 2008. Many countries in the region are dependent on crude oil imports to meet domestic demand. Imports to a select group of Asia-Pacific crude oil importing countries averaged a record-high 24 million barrels per day (b/d) in January 2018. As the crude oil trade in the region grows, a benchmark futures price that reflects local supply and demand conditions could benefit market participants in managing price risk.