The continuous surge of crude oil prices in the international
market is posing an urgent need for China to establish a
comprehensive energy futures market to help domestic downstream
enterprises minimize risks arising from frequent price swings.
Analysts said the introduction of more oil futures products is
of particular importance at a time when global economic
uncertainties have exacerbated the fluctuations in crude prices at
unprecedented high levels.
"There is clearly an urgent need to expand the scope of the
domestic oil futures market by introducing new oil futures
products, including futures contracts on crude, gasoline and
diesel," said Lin Hui, an analyst at Orient Securities Futures.
"The development of oil futures market is conducive to
increasing China's influence in global energy pricing and ensure
the country's economic security."
Industry analysts said the trading of fuel oil futures contracts
on Shanghai Futures Exchange, SHFE, since 2004 has paved the way
for more oil futures products.
Trading in fuel oil futures contracts has become increasingly
active over the past three years. The turnover of fuel oil futures
contracts on SHFE last year totaled 849.6 billion yuan, up 51.1
percent from 2005.
Analysts said what many Chinese downstream enterprises need most
is a transparent and effective oil futures market to hedge against
risks resulting from sharp swings in international oil prices.
Officials at SHFE have expressed their desire to launch oil
futures products to develop the energy-related futures market. The
exchange stepped up its research in developing oil futures
contracts two years ago.
In September, SHFE signed a memorandum of cooperation with China
University of Petroleum in Beijing to jointly set up an institute
of research on energy finance and pricing risks.
Yang Maijun, general manager of SHFE, had said at the signing
ceremony that the cooperation would enable the exchange to expand
the team of experts on energy economy and quicken the pace of
introducing oil futures products.
Analysts said an efficient oil futures market can make it
possible for prices to reflect the true supply and demand
"Only when market forces dictate oil prices can the futures
market truly reflect the supply and demand conditions in the
industry," said Zhou Jie, an analyst at China International Futures
(Shanghai) Co. "Small and medium-sized downstream enterprises can
benefit from the energy financial market then."
(China Daily January 4, 2008)