Crude Futures to Be Launched by 2012

China plans to launch global crude oil futures within the year and allow global players to join in the trade, a top official said yesterday, as the world's second largest oil consumer aims to increase its influence over global pricing.

"The launch of the crude oil futures symbolizes the innovation and gradual opening-up of China's commodities futures," Wang Lihua, chairwoman of the Shanghai Futures Exchange (SHFE), said at a forum in Shanghai yesterday.

Wang said the bourse had already completed a draft proposal, which includes regulations on offshore trading, oil benchmark, as well as related supervision rules.

It had started recruiting experienced professionals from around the globe, he said.

"This is a necessary step for China to increase its say in the pricing of global crude oil in a bid to cope with fluctuating oil prices, as the country is even more dependent on oil imports than before," Lin Boqiang, director of the Center for Energy Economics Research at Xiamen University, told the Global Times yesterday.

Domestic private refineries, which have limited access to crude oil, also welcomed the launch of the futures trading.

"It is long-expected news for us, as we can directly engage in crude oil transactions via the futures bourse," Chen Peng, a manager at Shandong Shtar Science & Technology Group, a refinery run by China University of Petroleum, told the Global Times yesterday.

The private refineries in China account for 30 percent of the country's oil refining capacity, but are not permitted by the government to import crude oil directly. Only the State-owned refineries like Sinopec have the import rights.

But Lin of Xiamen University said it will take at least five to 10 years to develop a mature crude oil futures bourse, which its initiator expects will compete with other well-known international futures like the Brent Crude Oil Futures.

"Global investors will hesitate to join in the trading in the initial period if crude oil imports continue to be highly controlled by the State-owned refineries, as it may cause problems when the futures are due to be delivered," Lin noted.

The limited convertibility of the yuan is another technical challenge for foreign players' participation. Wang Lihua of the SHFE said the futures contract could be priced in the yuan or the US dollar, but did not specify how it will work.

"The biggest challenge for the launch of the new futures is close and systematic cooperation among different official departments, including the State Administration of Foreign Exchange and National Development and Reform Commission," Li Zhoulei, a petroleum analyst from Shanghai Cifco Futures, told the Global Times yesterday.

The SHFE plans to launch more futures in the steel sector, including steel plates and iron ore. Other financial instruments like government bond futures are also under study, so as to hedge risks for enterprises, according to Wang.