Chinese crude oil futures market was earlier announced to launch by the end of this year, but currently it is expected to be started in 2013.
China aims to affect on global commodities pricing by using its own futures market. Success of crude oil futures seems to be the big milestone for the Chinese ambition.
Detailed specifications for the crude oil contract on the Shanghai Futures Exchange have not released yet. But market sources tell that the trading unit is 100 barrels, which is one tenth of WTI or Brent futures, and prices are set by every 0.1 RMB per barrel.
On the other hand, traded crude oil is estimated API 32 degree with 1.5% sulphur content. Since Chinese domestic produced oil is much lower sulphur content than that, Middle Eastern medium crude oil such as Arabian Light are likely to be the target.
Production volume of Arabian Light crude oil is over 4 million barrels per day, extremely larger than about 0.8 million bpd of Middle Eastern marker crude oil Dubai/Oman.
However, most of Middle Eastern crude oil are sold under long-term contracts, and have strict limitation to resale. Physical delivery for the futures contract may have difficulties.
Meanwhile, Chinese government has changed regulations for the futures market prior to the launch of crude oil contracts. Foreign institutions now can trade Chinese domestic futures contracts directly. Previously, foreign companies only had indirect connection with local Chinese market by capital investment.
Shanghai crude oil futures market is scheduled to provide US dollar denominated trade for foreign participants besides RMB denominated market for domestic players.
The relationship between the dollar denominated market and the RMB based market is still not clear. But supplying easy environment of arbitrage with overseas markets is quite important to activate the Shanghai market.
Daily trading volume should be recognized as more important matter. East Asia already has a Middle Eastern crude oil futures market in the Tokyo Commodity Exchange, but the Japanese market is ignored from global markets due to the sluggish trading volume.
TOCOM once influenced global precious metals markets because of large trading volume by private investors' active participation. But investors' attention has shifted from commodity futures to other market by Japanese government's regulations.
In China, many local brokers are planning to provide paper crude oil trading to investors. Those investment tools will be based on Shanghai futures market. Plenty investment money will provide good opportunities for arbitrage deals with overseas market.
If Chinese brokerage firms succeed to attract active investment into the new crude oil futures market, China is likely to have certain influence on global oil price decision mechanism. However, further economic recession and possible shrink of investment money may hamper the plan.