Oil Falls After API Reports Major Surprise Crude Inventory Build

Weekly Oil Markets Recap - Running Out Of Toilet Paper

The 15.4 million barrels done in Shanghai's 2-1/2-hour morning session initially topped the Brent May crude contract, before Europe's benchmark came alive around 0500 GMT.

By 11:14 a.m. (0314 GMT), 3,599 lots of the most-active June contract had traded, equivalent to 3.6 million barrels of crude.

The regulator "has the confidence, resolution and capability to build a sound crude oil futures market", Liu Shiyu, chairman of the China Securities Regulatory Commission said at the Shanghai Futures Exchange before trading got under way.

The contract for delivery in September opened about 6 per cent higher at 440.20 yuan (US$69.70) a barrel at 9:01am.

Oil prices fell on Wednesday, with Brent dropping back below $70 per barrel and U.S. West Texas Intermediate crudes dipping below $65, pulled down by a report of increasing U.S. crude inventories that surprised many traders.

Global commodity trader and miner Glencore, and big merchants Trafigura, Freepoint Commodities and Mercuria were among the first to trade the new contract, even as concerns remain that smaller overseas investors may struggle with unfamiliar rules and complex regulation.

The long-heralded trading debut of the crude oil futures - the first commodity futures contract that allows foreign traders to participate - comes after China surpassed the United States to become the world's largest crude importer in 2017.

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On the other hand, China is not leaving everything to market forces. To attract greater trade participation, Beijing plans to exempt foreign traders and organizations from income tax.

At the same time, recent "strength in oil has come on the back of strong supply and demand fundamentals as evidenced by recent USA data which shows total US oil stocks more or less flat over the past four weeks", according to analysis at consultancy JBC Energy. The global benchmark traded at a $4.56 premium to WTI. With this, the country, which is also the world's largest buyer of crude oil is trying to gain more control over pricing, challenging European and U.S. benchmarks.

Similar obstacles have kept foreign investors as bit players in the country's giant mainland stock and bond markets.

"It's hard to see it becoming a major driver of oil prices in the short to medium term", Australia & New Zealand Banking Group senior commodities strategist Daniel Hynes said. Yuan-based futures will help promote the yuan as a global currency.

While he's not particularly watching it closely for the moment, ANZ's Chinese desk is very focused on it, he added.

"The trade war story should be taken into account when trying to quantify the potentially bullish effect of the geopolitical element in oil markets", said analysts at consultancy JBC Energy.

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