Markets

Oil Holds Above $65 as Easing Trade Tensions Offset Supply Fears

Oil Holds Above $65 as Easing Trade Tensions Offset Supply Fears

Over 21 million barrels of the sulphur-rich oil were traded yesterday, reports the Wall Street Journal, meaning RMB18.3 billion ($2.9 billion) changed hands. This took one step closer when the Shanghai International Energy Exchange (INE) launched crude oil futures trading today, which provides data in establishing near-term spot prices (see chart). Last week, crude had seen an impressive recovery to two-month highs due to geopolitical risks, with speculation that the US president and Saudi Arabia's crown prince discussed the resumption of sanctions on Iran.

Shanghai crude oil futures got a lot of investor attention during their debut on Monday, with the most-active contract jumping 3.34% to 429.9 yuan ($68.07) per barrel.

The oil futures with delivery in September began the stock exchange session at a price of 440 CNY per barrel, and by noon almost 15,000 contracts changed their owners.

The American Petroleum Institute (API) has reported a major surprise build of 5.321 million barrels of USA crude oil inventories for the week ending March 23, with the market expected to respond by erasing last week's gains.

Global stocks came off six-week lows on optimism that the United States and China are set to begin trade talks, easing fears about a trade war between the world's two largest economies. The US dollar is the predominant settlement currency for oil futures contracts.

China on Monday launched trading of yuan-denominated crude oil futures contracts at the Shanghai International Energy Exchange, the first futures contracts listed on China's mainland to overseas investors.

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As a result of these tight reins on the new market segment, some analysts believe worldwide investors would be discouraged to tap the Shanghai oil futures. The futures are open for trading by foreigners.

Traders said the dips came after the American Petroleum Institute (API) had late on Tuesday reported a surprise 5.3 million barrels rise in crude sticks in the week to March 23, to 430.6 million barrels.

Brent crude futures were up 28c on the day at $70.40 a barrel by 8.48am GMT, while West Texas Intermediate (WTI) crude futures were up 19c at $65.74 a barrel.

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

"Whether this will have any real bearing on the other crude benchmarks, I'm not quite sure, but traders love a new toy, so I applaud China for bringing in something that could stoke up some volatility", said Matt Stanley, a fuel broker with Freight Investor Services (FIS) in Dubai.

In Asia, crude oil is mainly priced against the Dubai, Oman and dated Brent benchmarks or Oman crude futures on the Dubai Mercantile Exchange. "For the moment it is looking like both WTI and Brent are stalling", said Greg McKenna, chief market strategist at futures brokerage AxiTrader.