China launched its first long-expected crude oil futures contracts on a bullish note Monday, with the front-month September contract closing the afternoon session 3% higher from the starting price of Yuan 416/b set by the Shanghai International Energy Exchange, after having touched an intraday high of Yuan 447.1/b.
China's ultimate goal is to create a crude oil benchmark in Shanghai that can help the country wrest some pricing power away from worldwide competitors such as Intercontinental Exchange's Brent contract and the New York Mercantile Exchange's WTI.
The futures changed hands in the first 25 minutes as China debuted its oil benchmark.
Oil prices settled lower Monday, pulling back from the multiweek highs scored last week, with traders weighing trade tensions between the US and China, as China marked the start of trading for its own crude futures contract.
Singapore-based brokerage Phillip Futures said that "surging production levels persist" in the US.
China's foreign ministry said on Monday Beijing is willing to hold talks with the United States to resolve their differences in a hopeful sign a potentially damaging trade war could be avoided.
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. Brent crude is now above $70.20. September Brent and WTI traded near $68.22 a barrel and $63.94, respectively, on Monday.More news: Thousands protest after ex-Catalan leader detained
"The recent rally in oil prices might have taken some by surprise as the underlying fundamental picture does not justify Brent being close to US$70 a barrel".
The price of SC1809 contracts started at 440 yuan per barrel and closed at 429.9 yuan per barrel, which is 3.34 percent higher than the benchmark price.
We also don't know if the behind-the-scene talks between the USA and China will prevent a looming trade war.
The jump came after Brent futures for May delivery opened above $70 per barrel for the first time since January on expectations OPEC-leader Saudi Arabia may extend supply cuts into 2019, as well as over concern that the United States may re-introduce sanctions against Iran.
Nickel was the last major commodity to be listed there in 2015; within six weeks, trading in Shanghai surpassed benchmark futures on the London Metal Exchange, or LME.
Oil traded above $66 a barrel Tuesday morning as global trade tensions showed signs of easing, countering concerns that US crude stockpiles may have resumed their expansion last week.
The Chinese government would rather have a slightly slower or softer launch so it doesn't have to intervene early on in a market that's bubbling too quickly, said Michal Meidan, an analyst at industry consultant Energy Aspects Ltd. Steep price rises relented when China intervened with tighter trading rules, higher fees and shorter trading hours.