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The Oil Trade Only for Those Ready to Brave the Wild Yuan

  • Chinese oil futures trade at a premium to those in the Mideast
  • Traders are hesitant to arbitrage cargoes from other regions
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Photographer: SeongJoon Cho/Bloomberg
Updated on

Wild swings in the yuan and punitive storage costs are making oil traders think twice about a bet on China’s fledgling crude futures that looks highly lucrative on paper.

Last week, taking into account freight costs, they could have theoretically bought a November-loading cargo of Middle East oil for delivery to a buyer of December futures in China at a profit of $3.35 a barrel, or $6.7 million for the whole shipment. That’s because Chinese futures, which started trading in March, fetched an unusually high premium versus oil from outside the region.