China may have become the world’s largest importer of crude oil in April, but there is one thing it still lacks: its own oil market.
That could change this year if the Shanghai International Energy Exchange Ltd., also known as INE, launches a long-planned oil-futures contract in Shanghai’s free-trade zone. Yang Maijun, the chairman of the Shanghai Futures Exchange, one of the partners in INE, said earlier this year that trading in the new oil contract could begin in 2015.
The establishment of an oil-futures market in China could prove another milestone in what analysts at Macquarie Group Ltd. recently called a “seismic shift in futures-trading firepower from West to East” in commodities markets.
Already, the volume of metals futures traded on Chinese exchanges at times eclipses volumes on the London Metal Exchange, according to Macquarie. Ten of the 20 agricultural commodity contracts that had the most trading volume in 2014 were on Chinese exchanges.
But the planned Shanghai oil market’s success will depend on how well it satisfies two potentially conflicting aims.
The INE wants to tap huge potential interest from Chinese individual investors, who have poured billions of yuan into domestic markets for commodities from iron ore to soybeans in recent years. It also hopes its new oil contract will eventually stand alongside the U.S.’s West Texas Intermediate and the U.K.’s Brent futures as a key global oil-price benchmark, albeit one that better reflects Asian market conditions.