BEIJING, Nov 5 (Reuters) - China’s launch of a crude oil futures contract to compete with global benchmarks is likely to be pushed to next year as stock market turmoil and a widening anti-graft probe are set to delay the final regulatory nod, oil sources said.
The contract, designed to challenge London’s Brent and the U.S.’s West Texas Intermediate futures in a global market worth trillions of dollars, had been expected to start up in October but now is not likely to be seen before the first quarter of 2016, said three senior sources with knowledge of the matter.
After winning approvals from the central bank, customs and the foreign exchange regulator, a final hurdle was to get the nod from the China Securities Regulatory Commission (CSRC).
But this summer’s boom-and-bust Chinese stock markets raised concerns over the country’s capacity to handle financial turbulence.
“The stock market turmoil would make the regulators more hesitant in launching new financial products, not to mention the inherent challenges of the Shanghai oil contract,” said a veteran oil trader involved in preparations for the contract.
The host of the contract, Shanghai-based International Energy Exchange (INE), is hoping to win the CSRC’s approval before year-end, said an exchange source, suggesting the actual start of trading would be in 2016.
A widening anti-corruption investigation that has expanded to financial institutions including the CSRC would add another brake to the normal work flows, the sources said.
Without giving a timeline, an INE media official said the exchange is “pushing forward other preparation works for the launch of the oil futures after having solicited feedbacks for trading rules of the contract.”
The futures contract, China’s first that would allow direct participation by foreign firms, would better reflect the growing importance of the world’s No.2 crude oil buyer, as well as boost use of the yuan currency in which it will be denominated, officials have said.
China has this year allowed for the first time independent refineries to import crude oil, a move aimed at least in part at getting the smaller companies to take deliveries off of the new contract and boost its liquidity, traders have said.
But senior oil traders said lack of interest from key producers such as nations in the Middle East to use the Shanghai contract to price their oil, as well as challenges in managing large currency flows, would limit the chances for its success. (Reporting by Chen Aizhu; Editing by Tom Hogue)