In the
first physical settlement of the Chinese yuan-denominated oil futures
contract, five companies will deliver a total of 600,000 barrels of
Middle Eastern crude grades to buyers of the September futures
contract.
China’s
crude oil futures launched in March, with crude set for delivery in
September, the first month which the Shanghai International Energy
Exchange (INE) designated for deliveries in order to allow the
contract to develop and accumulate volumes for physical delivery.
The
deliverability, the volume, and smooth process will be key to China
fulfilling its ambition to have the yuan-priced oil futures contract
become a major crude benchmark on a global scale like the Brent and
WTI benchmarks, analysts told Reuters.
The
first such test will be next month, during which Chinese companies,
including state-held majors, will deliver oil against the Chinese oil
futures contract to storage facilities that are among the eight sites
that the Shanghai exchange has approved for cargo delivery in the
futures contract, according to sources.
Unipec,
the trading unit of Asia’s biggest refiner Sinopec, plans to
deliver some 200,000 barrels of Iraqi grade Basra Light to
Sinopec-held storage tanks at an island off the eastern province of
Zhejiang.
Each of
CNPC Fuel Oil, Zhenhua Oil, and unidentified private firm will
deliver 100,000 barrels of Basra Light into CNPC Fuel Oil-operated
storage farm in the southern port of Zhanjiang, while CNPC’s
trading arm Chinaoil will deliver 100,000 barrels of Oman crude to
storage tanks in the northeastern city of Dalian, the sources said.
It is
not immediately known who will be taking the oil that the companies
will deliver against the yuan-denominated oil futures contract.
Analysts
have flagged storage costs in China as one of the problems that
traders could face in the delivery mechanism of the Chinese oil
futures contract. Storage costs in China are much higher than
elsewhere. The reason for the higher cost is limited storage capacity
availability and the requirement that the cargo be stored at a
specific storage facility rather than at any available.
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