Finance

Oil briefly hits $71, with US supply, Middle East in focus

Oil briefly hits $71, with US supply, Middle East in focus”

Trade tensions appeared to ease a bit on Monday, however, as The Wall Street Journal reported (http://www.marketwatch.com/story/us-china-said-to-be-talking-behind-the-scene-to-avoid-trade-war-2018-03-25) that China and the us have quietly started negotiating to improve USA access to Chinese markets.

Portfolio managers hold 11.7 long positions for every short one, the second-highest ratio on record after 11.9 on January 30. Brent crude is now above $70.20. There's also concern over volatility. China imports about 600,000 b/d of Oman crude. The contract fell 33 cents to $65.55 on Monday.

Overseas investors can invest in the futures contracts through various means. To be relevant to participants in multiple countries, you also need currency hedging so that (for example) Japanese refiners don't get side-swiped by a sudden jump in the yen against the dollar.

Futures in NY were up 0.1 percent after closing 0.5 percent lower on Monday.

SHANGHAI, March 26 (Xinhua) - China launched trading of crude oil futures contracts at the Shanghai International Energy Exchange on Monday in its steady move of opening up the financial sector.

Trading will resume at 1:30 p.m. One positive is that the contract will be based on seven different grades, mainly from the Arabian Gulf but also including China's own Shengli.

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One way of tempering the froth has been to limit physical delivery space for the oil barrels as well as set storage costs that are double the rate elsewhere.

But that "comes as Shanghai crude oil futures made a strong debut and was well received by investors", Kapadia said in emailed commentary. The market launched on Monday with greater-than-expected volumes and trading activity from western traders and Chinese state majors. In early 2016, the then-head of the LME said it was possible some Chinese traders did not even know what they were trading as investors piled into everything from steel reinforcement bars to iron ore. Brent is slightly higher, while WTI is trading flat.

That remains to be seen.

The possibility of a full-blown trade war had weighed on the energy complex on fears that it could harm oil demand. Restrictions on moving money in and out of the country have been tightened in the past two years after a shock devaluation of the yuan in 2015 prompted a surge in money leaving the mainland.

Similar obstacles have kept foreign investors as bit players in the nation's giant stock and bond markets. According to the Shanghai International Energy Exchange data, 19 foreign brokers have registered for oil contracts during the last week.

Supply curbs by Opec, Russia and their allies have helped push Brent above US$70 this year for the second time since late 2014, but analysts said this strength may not persist long. "Nobody says that the oil exchange in China will outperform all other exchanges tomorrow".



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