After ten years of preparation, the Shanghai International Energy Exchange launched its Yuan-denominated crude contract last week. Within the first few hours, almost 20 million barrels of crude were exchanged – with players ranging from small-scale individual investors to the big trading houses like Mercuria and Trafigura. In fact, the very first Shanghai crude contract was done by trading giant Glencore. By the end of overnight trading, over 42 million barrels had been traded, with prices riding high on both initial enthusiasm and a parallel jump in Brent/WTI prices at the same time.
A slump subsequently followed, as traders scrambled to calibrate their trading strategies Shanghai splits its trading in three sessions, while trade on Brent and WTI continue uninterrupted. By midweek, prices had fallen by the original reference price of CNY416 – as concerns over a US-China trade war and weaker fundamentals set in - but rallied towards Friday to close on par with Monday, as chatter on the market suggested that China will be looking to purchase crude in Yuan instead of US dollars moved the market. The price volatility is to be expected given the initial teething period, but it appears that traders have taken to the Shanghai contract well, and it will succeed where many others have failed in the past, creating an Asian benchmark to complement the Brent (Europe) and WTI (Americas) contracts.
Crucially, liquidity has been improving. Though still lower than Brent or WTI, traded volumes reached 68 million barrels on March 28 and seem to be hovering around 60 million barrels going into April. This reflects the power of China as a crude buyer, and also the geography of Asian demand. Most of the crude in Asia comes from the Middle East in medium/sour grades, so it has never made a lot of sense that crude heading from, say, Abu Dhabi to Yokohama or Ras Tanura to Shandong, is based off the light sweet Brent contract. Liquidity and enthusiasm have prevented a true Asian benchmark from emerging in Tokyo or Singapore in the past, but Shanghai looks to have succeeded, at least for now. It adds a much needed hedging option, and as the first commodity derivative in China open to foreign investors, plenty of speculative activity. Trader comments have been very positive, although some tweaks have been suggested, including longer and more contiguous trading times to enable more arbitrage strategies.
It has only been a week, but the signs are good and the timing seems right. The Shanghai crude contract seems here to stay for now.
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In the last week, global crude oil price benchmarks have leapt up by some US$5/b. Brent is now in the US$66/b range, while WTI maintains its preferred US$10/b discount at US$56/b. On the surface, it would seem that the new OPEC+ supply deal – scheduled to last until April – is working. But the drivers pushing on the current rally are a bit more complicated.
Pledges by OPEC members are the main force behind the rise. After displaying some reticence over the timeline of cuts, Russia has now promised to ‘speed up cuts’ to its oil production in line with other key members of OPEC. Saudi Arabia, along with main allies the UAE and Kuwait, have been at the forefront of this – having made deeper-than-promised cuts in January with plans to go a bit further in February. After looking a bit shaky – a joint Saudi Arabia-Russia meeting was called off at the recent World Economic Forum in Davos in January – the bromance of world’s two oil superpowers looks to have resumed. And with it, confidence in the OPEC+ club’s abilities.
Russia and Saudi Arabia both making new pledges on supply cuts comes despite supply issues elsewhere in OPEC, which could have provided some cushion for smaller cuts. Iranian production remains constrained by new American sanctions; targeted waivers have provided some relief – and indeed Iranian crude exports have grown slightly over January and February – but the waivers expire in May and there is uncertainty over their extension. Meanwhile, the implosion in Venezuela continues, with the USA slapping new sanctions on the Venezuelan crude complex in hopes of spurring regime change. The situation in Libya – with the Sharara field swinging between closure and operation due to ongoing militant action – is dicey. And in Saudi Arabia, a damaged power repair cable has curbed output at the giant 1.2 mmb/d Safaniuyah field.
So the supply situation is supportive of a rally, from both planned and unplanned actions. But crude prices are also reacting to developments in the wider geopolitical world. The USA and China are still locked in an impasse over trade, with a March 1 deadline looming, after which doubled US tariffs on US$200 billion worth of Chinese imports would kick in. Continued escalation in the trade war could lead to a global recession, or at least a severe slowdown. But the market is taking relief that an agreement could be made. First, US President Donald Trump alluded to the possibility of pushing the deadline by 2 months to allow for more talks. And now, chatter suggests that despite reservations, American and Chinese negotiators are now ‘approaching a consensus’. The threat of the R-word – recession – could be avoided and this is pumping some confidence back in the market. But there are more risks on the horizon. The UK is set to exit the European Union at the end of March, and there is still no deal in sight. A measured Brexit would be messy, but a no-deal Brexit would be chaotic – and that chaos would have a knock-on effect on global economies and markets.
But for now, the market assumes that there must be progress in US-China trade talks and the UK must fall in line with an orderly Brexit. If that holds – and if OPEC’s supply commitments stand – the rally in crude prices will continue. And it must. Because the alternative is frightening for all.
Factors driving the current crude rally:
Already, lubricant players have established their footholds here in Bangladesh, with international brands.
However, the situation is being tough as too many brands entered in this market. So, it is clear, the lubricants brands are struggling to sustain their market shares.
For this reason, we recommend an impression of “Lubricants shelf” to evaluate your brand visibility, which can a key indicator of the market shares of the existing brands.
Every retailer shop has different display shelves and the sellers place different product cans for the end-users. By nature, the sellers have the sole control of those shelves for the preferred product cans.The idea of “Lubricants shelf” may give the marketer an impression, how to penetrate in this competitive market.
The well-known lubricants brands automatically seized the product shelves because of the user demand. But for the struggling brands, this idea can be a key identifier of the business strategy to take over other brands.
The key objective of this impression of “Lubricants shelf” is to create an overview of your brand positioning in this competitive market.
A discussion on Lubricants Shelves; from the evaluation perspective, a discussion ground has been created to solely represent this trade, as well as its other stakeholders.Why “Lubricants shelf” is key to monitor engine oil market?
The lubricants shelves of the overall market have already placed more than 100 brands altogether and the number of brands is increasing day by day.
And the situation is being worsened while so many by name products are taking the different shelves of different clusters. This market has become more overstated in terms of brand names and local products.
You may argue with us; lubricants shelves have no more space to place your new brands. You might get surprised by hearing such a statement. For your information, it’s not a surprising one.
Regularly, lubricants retailers have to welcome the representatives of newly entered brands.
And, business Insiders has depicted this lubricants market as a silent trade with a lot of floating traders.
On an assumption, the annual domestic demand for lubricants oils is around 100 million litres, whereas base oil demand around 140 million litres.
However, the lack of market monitoring and the least reporting makes the lubricants trade unnoticeable to the public.
Headline crude prices for the week beginning 11 February 2019 – Brent: US$61/b; WTI: US$52/b
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