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China launches crude oil options open to foreign traders

3 minute read

A crude oil tanker is seen at Qingdao Port, Shandong province, China, April 21, 2019. REUTERS/Jason Lee/File Photo

SHANGHAI, June 21 (Reuters) - China's first energy options open to foreign traders made their Shanghai International Energy Exchange (INE) debut on Monday with the new crude oil contract achieving only muted volumes.

The arrival of China's second options contract accessible to foreign investors follows the launch of palm oil options on the Dalian Commodity Exchange on Friday and is part of Chinese efforts to increase the country's global commodities pricing power.

Open interest and trading volumes for the crude oil options stood at 1,652 and 4,475 lots respectively at the close, though traders and brokers said such volumes were typical for an options debut in China. <0#ISC+>

China is the world's largest crude oil importer and the second-largest consumer behind the United States. It launched its crude oil futures in March 2018.

"I do see keen market interest," said Tiger Shi, managing director of broker Bands Financial, pointing to potential arbitrage opportunities between exchanges.

"The entire market is quite upbeat. This tool will provide another instrument to trade the market. It could be the right time."

Global crude oil prices have gained for four weeks running on optimism over the pace of global COVID-19 vaccinations and a pick up in summer travel. Brent crude was last up 0.3% at $73.75 a barrel, while China's front-month INE crude oil contract gained 0.1% to 440.20 yuan ($68.05).

The Shanghai Futures Exchange, which owns the INE, said the companies involved in the first batch of trades included the Hong Kong and East China subsidiaries of PetroChina International Co, commodities traders Trafigura, Mercuria and Freepoint Commodities and Chinese brokerage CITIC Securities.

The INE also announced 10 market-makers for the contract, including CITIC Securities, Shenwan Hongyuan Securities and Guotai Junan Risk Management Co.

"The new options contract will, as did the futures contract, take time to attract significant liquidity and participation from a wider non-domestic audience," said Lee Lian Tuck, head of listed derivatives, Asia, at brokerage StoneX, adding that there had been more interest from domestic investors.

"But the addition of an options contract ... in such a large market is definitely another step in the right direction."

($1 = 6.4685 Chinese yuan renminbi)

Reporting by Emily Chow Editing by David Goodman

Our Standards: The Thomson Reuters Trust Principles.

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