March 26 (UPI) -- The global market was put on notice Monday with the start of oil futures trading on the Shanghai index, though confidence will take some time, analysts said.
The Shanghai International Energy Exchange started inaugural trades for crude oil futures contracts settled in renminbi, a first for the Asian market. The dozen or so contracts listed on the first trading day were set at around $65 per barrel, about on par with West Texas Intermediate, the U.S. benchmark for the price of oil, but discounted to Brent, the global benchmark, by about $4.80 per barrel early Monday.
"China is the world's largest importer of crude oil, and the introduction of renminbi -denominated crude oil futures contracts represents a milestone for China's futures market," said David Martin, Asia-Pacific head of global clearing at J.P. Morgan, was quoted by China's official Xinhua News Agency as saying.
Chinese currencies have elite status from the International Monetary Fund, with the renminbi taking a position alongside the U.S. dollar, the euro, the British pound and the yen. IMF Managing Director Christine Lagarde has said the inclusion of the renminbi reflects progress in Chinese financial reforms and "the ongoing evolution of the global economy."
China is the world's second-largest economy, behind the United States. It passed the United States to become the largest crude oil importer in the world last year.
"We expect China's crude import requirements to grow by about 2.1 million barrels per day from 2017 to 2023, much larger than any other country's incremental requirements," Wood Mackenzie's research director Sushant Gupta told UPI. "Rightly so, China would want to play a more active role in influencing the price of crude oil."
Giovanni Stauvano, a commodity analyst at UBS, told UPI that given China's presence on the economic and energy stages, it's no surprise it aims to internationalize its currencies.
"China's new contract saw strong maiden trade, with bids from domestic retail to foreign institutional buyers," he added.
The launch of the futures contract comes amid simmering trade tensions between China and the United States. And, with the United States exporting more of its crude oil, WTI has gained a competitive edge in the Asian market because of its discount to Brent.
The U.S. Energy Information Administration said Russia, however, is the largest oil supplier to the Chinese market.
Wood Mackenzie's Gupta added that crude oil suppliers from the Middle East and United States will need to stay competitive now with the Chinese entry, but it's far too early to have a direct market impact.
"It may take years for market participants to build confidence in China's benchmark," he said.