However, the ability to trade on home turf does not necessarily mean China will have a new benchmark anytime soon.

“It took 17 years for China’s crude oil future trading to be launched on this day,” Liu Shiyu, chairman of the China Securities Regulatory Commission (CSRC), said at the opening ceremony of the Shanghai International Energy Exchange on Monday morning, emphasizing the meaning for a country that is the biggest consumer of oil in the world. China imported 8.4 million barrels of oil per day in 2017, surpassing the U.S.

There was also political significance to the event, with the CSRC’s Liu saying in his short opening speech that the newly appointed vice premier and main economic adviser to President Xi Jinping, Liu He, had handed down “important instructions” related to this new platform, and also twice mentioning its relevance to the latest communist party mantra.

In Hong Kong, China Petroleum & Chemical (Sinopec) Vice Chairman and President Dai Houliang vowed to “actively participate” in the new Shanghai market during a press conference for the oil group’s latest earnings. As one of the largest traders of oil products in China, Dai stressed that the state-owned company would increasingly make use of the new platform in the coming days.

The Chinese government indicated its will to develop the market by allowing foreign players to directly participate in the yuan-denominated trading, in a country of capital controls and where stock market trading is limited to certain specified channels.

The Ministry of Finance announced last Tuesday that it would exempt foreign investors from taxation on profit made on crude oil futures trading over the next three years.

Question Marks

But experts are highly skeptical that the new Shanghai market will quickly gain the clout of an international benchmark.

North Sea Brent crude traded in London and West Texas Intermediate in New York are the current international oil pricing benchmarks. Neither Shanghai nor any other oil futures market in Asia match them in terms of scale or influence.

Even if trading in Shanghai becomes active and transparent, questions have been raised over the physical delivery and storage of oil imports going forward.

The Shanghai exchange has specifications such as the sulfur content of the crude oil listed for trading. While seven types of oil produced in the Middle East will be the primary deliveries, Takayuki Homma, head of economic research at Sumitomo Corp. Global Research said, “It is uncertain whether multiple crude oils will be mixed or not.”

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