China's 20-Year Crude Oil Futures Wait Drags On Amid Volatility

  • Exchange needs to conduct mock trading and finalize rules
  • Contract awaiting approval from China's securities regulator

The wait for China’s first oil futures contract in more than 20 years isn’t over yet.

Scheduled to start by the end of this year, the contract on the Shanghai Futures Exchange may now be delayed until 2016, Lu Feng, an official with the Shanghai International Energy Exchange Ltd. said Thursday. The bourse must finalize rules and conduct mock trading and still needs approval from the China Securities Regulatory Commission, he said. That’ll make it difficult to start in 2015.

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. Equities turmoil and volatile financial markets may have made the Chinese government cautious about starting the contract now, according to Everbright Futures Co.

"The domestic financial market has been quite volatile this year, so the government prefers to be more cautious when introducing new and important contracts," Li Zhoulei, an analyst with Everbright Futures Co., said by phone. "China will sooner or later start crude futures as the nation needs more influence in oil pricing."

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China vies with the U.S. as the world’s biggest crude importer and is seeking to establish more clout over pricing and promote greater use of its currency. The country also loosened rules this year to allow independent refineries to import oil, widening the number of potential domestic users of the yuan-denominated contract, which will also be one of the first commodity futures available to foreign investors.

“The exchange still has some work to do,” said Lu, who is head of the legal and products unit at the exchange, also known as INE. “It is up to the government to decide when the contract will be launched. It may be difficult to start the contract this year.”

China imported 6.23 million barrels a day in October, a five-month low. That may rise to about 6.8 million this month as independent refiners increase buying under the expanded quotas, according to the average of four analyst estimates compiled by Bloomberg. Imports in the first 10 months of the year are up 8.9 percent.

The INE was started in 2013 as a subsidiary of the Shanghai Futures Exchange and trading of the contract was originally targeted to start last year.

— With assistance by Sarah Chen, and Jing Yang

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