Want to Trade China Oil Futures? Here's What You Need to Know

  • Priced and settled in yuan; foreign currency usable for margin
  • Shanghai contract open to domestic and foreign investors

China plans to start a crude futures contract this year as the country -- which vies with the U.S. as the world’s biggest importer -- seeks to establish its own pricing benchmark for the oil it buys.

West Texas Intermediate on the New York Mercantile Exchange and Brent on the London-based ICE Futures Europe are now the most-watched grades globally, followed by Dubai oil, which is the main pricing benchmark for Middle East crude sold to Asia.

The oil future on the Shanghai International Energy Exchange Ltd., also known as the INE, will be one of the first commodity contracts available to foreign investors as the country seeks more influence over pricing and promotes greater international use of its currency, the yuan.

A spot gold contract that’s linked to the mainland market started last year on the Shanghai Gold Exchange and is available to foreign investors in the city’s free-trade zone. China also started domestic nickel and tin futures in March, matching the same main contracts as the world’s biggest metals bourse in London.

What currency will the futures be traded in?

The Shanghai crude contract will be priced and settled in yuan. Overseas investors can use foreign currency for margin requirements.

What are the specifications?

The contract for the medium sour grade will trade in 100-barrel lots, with crude of 32 degrees American Petroleum Institute gravity and 1.5 percent sulfur content by weight. The exchange hasn’t announced specific deliverable grades. Dubai, Upper Zakum, Oman, Qatar Marine, Basrah, Masila and China’s Shengli are likely, according to Li Li, a research director with ICIS China, a Shanghai-based commodity researcher. Premiums or discounts will be applied to different crudes delivered into the contract based on how they differ from the benchmark contract quality.

The contract is priced on a Cost, Insurance and Freight, or CIF, basis. That’s in contrast to major oil benchmarks WTI, Brent and Dubai, which are priced as Free on Board, FOB.

The daily trading limit for the contract is up or down 4 percent and minimum margin requirement is 5 percent. Trading hours are 9 a.m. to 11:30 a.m., 1:30 p.m. to 3 p.m. and 9 p.m. to 2:30 a.m. local time.

Where will delivery occur?

Crude will be delivered in designated bonded warehouses along China’s coast. The exchange plans 2.3 million cubic meters (14.47 million barrels) of storage capacity for initial use. Oil for delivery must come directly from the country where it’s produced and no blending is allowed during shipping or storage.

Who can trade?

Domestic and foreign investors can trade. Foreign participants can use overseas financial institutions or domestic futures companies that are members of the Shanghai International Energy Exchange.

No income tax will be levied on profits made through crude futures trading by foreign investors.