Oil prices find support in trade talks, Middle East tensions

Oil prices retreat from 2-month high as US-China trade dispute looms

Shanghai crude oil futures opened up more than six per cent on Monday with nearly 20 million barrels of the most-active September contract changing hands.

"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.

US West Texas Intermediate (WTI) crude futures fell 26 cents to $65.62.

The Shanghai International Energy Exchange held a ceremony to mark the launch.

Chinese online newspaper Global Times specified that the Shanghai yuan-denominated crude futures were traded Monday "at 429.9 yuan ($68.30) a barrel for September by the end of the trading day at 3 pm (GMT+8), slightly down from 440 yuan at the start of trading, but still above the preset reference point of 416 yuan by 3.34 percent".

Most of China's imported crude (about 600,000 barrels a day) is DME Oman grade, which traded at a discount of about $2.50 a barrel to Brent. About 15,000 contracts had changed hands as of 11:30 a.m. local time.

Straits said it brokered the first trade for Glencore and cleared the deal through Xinhu Futures. To attract more participation, China plans to waive income taxes for overseas individuals and institutions.

The operations in the Chinese Exchange have the possibility of conversion in gold and they will be open to foreign investors in different variants.

While the country hopes to establish a benchmark for global oil transactions, whether the Asian nation will achieve that goal has been the subject of hot debate.

Similar obstacles have kept foreign investors as bit players in the country's giant mainland stock and bond markets.

"It's hard to see it becoming a major driver of oil prices in the short to medium term", Australia & New Zealand Banking Group senior commodities strategist Daniel Hynes said.

While he is not particularly watching it closely for the moment, ANZ's Chinese desk is very focused on it, he said.

But foreign investor response to those openings has been tepid, and while analysts say the yuan oil futures will help further internationalise China's markets and increase crude price transparency in Asia, the dollar's position as the world's petro-currency remains solid.

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. If that happens at all it won't happen quickly, but the Chinese have a history of being patient.

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