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Oil holds above $70 on geopolitical tension

Oil holds above $70 on geopolitical tension”

"China is the world's largest importer of crude oil, and the introduction of RMB-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.

Meanwhile, "a rise in the number of oil rigs drilling for oil also weighed on oil prices", said Kapadia.

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

Shanghai crude oil futures opened up more than 6 percent with nearly 20 million barrels of the most-active September contract changing hands in the first 25 minutes as China debuted its oil benchmark.

Late Tuesday, the American Petroleum Institute released data showing a 5.3 million-barrel increase in crude supplies for the week ended March 23.

However, the contract will also come with quirks that traders used to London's Brent or U.S. West Texas Intermediate (WTI) may find less appealing, including shorter business hours, unique Chinese trading habits and extended holiday breaks. Looking at reactions in markets, crude oil prices strengthened following the EIA report.

Brent volumes have been lower than usual as much of Europe is already on holiday for Easter.

Beijing has set a daily foreign-exchange quota of US$5 billion and is likely to raise the cap in the future to attract more overseas traders to invest in the contracts.

"Prices assessed at the Shanghai exchange will reflect China's crude supply and demand", said Sushant Gupta, research director at energy consultancy Wood Mackenzie.

Skeptics argue that hurdles, such as capital controls, regulatory risk and market intervention in other Chinese securities have made investors cynical about the prospect of Shanghai futures becoming a regional price setter. "I still think there is a general reluctance from global investors to trade Chinese-based contracts".

A surprise to many was that Glencore executed Shanghai's first crude deal.

"As things stand, it is a question of when, not if, the USA withdraws from the agreement and fires a fresh sanctions salvo towards the OPEC nation", Stephen Brennock, an analyst at PVM Oil Associates Ltd., wrote about the Iran deal.

"President Donald Trump continues to suggest the US will pull out from (the) Iran nuclear deal, which raises the specter of bringing back sanctions on the country and severely limiting Tehran's ability to export crude oil", said Stephen Innes, head of trading for Asia/Pacific at futures brokerage OANDA in Singapore.



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