Crude Oil Holds Near 7-week Highs

China's first oil futures off to a flying start as Beijing vies for pricing power

Nearly 40.7 million barrels of oil changed hands via the September contract during Monday's five-hour session, according to data from the Shanghai Futures Exchange.

On the other hand, global stocks, which have proven to be a significant influence on crude prices, came off six-week lows due to expectations that the US and China will soon begin trade talks rather than undertake an all-out trade war.

Brent crude futures traded at $70.23 per barrel, while the West Texas Intermediate (WTI) crude futures traded at $65.63.

Many awaited the launch eagerly, seeking to tap China's bustling commodity markets, although doubts remain whether the Shanghai futures contract will be able to become another worldwide oil benchmark. "We take the view that the contract is viable and adds to the crude oil trading value chain, and is here to stay", said Kevin Tan, executive vice president at Singapore-based brokerage Straits Financial Services. Total volume traded was about 31 percent below the 100-day average. "It's all very different".

China's crude futures kicked off to a roaring start on Monday as western traders and Chinese majors eagerly traded the world's newest financial oil instrument, which many expect to become a third global price benchmark alongside Brent and WTI crude.

Analysts said fresh positions created by traders, in line with a firm trend overseas amid pick up in demand from consuming industries in the physical market, drove the upside in zinc prices in futures trade.

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"It is more of a game changer for the US". A resurgence in risk appetite has helped lift markets from equities to commodities after a report that the Trump administration is urging China to lower tariffs on cars during talks to calm trade tensions.

Chinese trading habits may also be a shock to foreign users, they said. But by 5 p.m. Shanghai time, 37,655 of those Brent contracts had changed hands.

But analysts said Chinese capital controls will likely discourage hefty foreign engagement, as will wariness of the often wild gyrations in China's still relatively immature financial markets.

Despite this, there were concerns over regulatory interference, as seen in other Chinese commodities like iron ore and coal.

The spread between front-month September delivery futures contract and the second-month October contract stood at a premium of Yuan 3.5/b, maintaining the backwardated market structure since the debut opening at 9 am. Other participants included Freepoint Commodities, BOCI Global Commodities and North Petroleum International. Contracts set up by the Dubai Mercantile Exchange a decade ago have not matched Brent or WTI, traded on the Intercontinental Exchange and the New York Mercantile Exchange (NYMEX) owned by CME Group.

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