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Oil eases back from 2018 highs above US$70 a barrel

29 March 2018, 01:51 | Lionel James

Oil storage tanks are seen at Yangshan port in Shanghai on March 14

Oil storage tanks are seen at Yangshan port in Shanghai on March 14

Now that China is the largest importer of crude oil in the world, it makes sense to accelerate the development of a fully fledged crude oil trading exchange.

Oil prices settled lower Monday, pulling back from the multiweek highs scored last week, with traders weighing trade tensions between the USA and China, as China marked the start of trading for its own crude futures contract. Last week, crude had seen an impressive recovery to two-month highs due to geopolitical risks, with speculation that the USA president and Saudi Arabia's crown prince discussed the resumption of sanctions on Iran.

Spot Shanghai crude futures ISCc1 were down by 4.1 percent on Wednesday, to 408.9 yuan ($65.09) per barrel by 0612 GMT.

"This was exacerbated by an appreciating USA dollar and an unexpected 5.3 million barrel rise in United States crude oil stocks last week, as reported by the API after close of trading yesterday".

However, if traders on this so-so Monday market were casting about for something different to worry about in the weeks and months to come, they had only to look at the latest market report from the International Energy Agency, which pointed out that that the oil industry only discovered 4 billion barrels of new resources past year, well short of the 36 billion barrels consumed globally in 2017.

The Brent North Sea benchmark was above the $70 Dollars on Tuesday for the third day in a row and stood at $70.42 USD a barrel, while the West Texas Intermediate was posted at $65.73 a barrel. Treasury Secretary Steven Mnuchin said on Fox News that he's optimistic the USA can reach a truce with China on trade.

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The admission of foreign investors directly to futures trading occurs for the first time in Chinese commodity markets.

The skeptics say that capital controls, regulatory risks, and state intervention in other Chinese securities have made investors distrustful about the possibility that Shanghai futures will become a regional factor for pricing.

The current deal, under which OPEC and non-OPEC producers are cutting supply by about 1.8 million barrels per day, expires in March 2018. "I still think there is a general reluctance from global investors to trade Chinese-based contracts".

Yang Xiaoping, president of BP China, said China's crude oil futures offer companies in the real economy a hedging tool that can better reflect market conditions in Asia.

Brent for May settlement declined 51 cents to $69.60 a barrel on the London-based ICE Futures Europe exchange. The contract closed at 429.9 yuan per barrel ($68.22).

Chinese exchanges count each side of a trade - the buy and the sell - as two lots, meaning the total oil changing hands was 20,328 lots, equal to 20.3 million barrels.



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