Chinaoil has shifted around 500,000 barrels of Oman crude into storage in China’s northeastern port of Dalian for likely use as physical settlement for crude oil futures on the new Shanghai International Energy Exchange (INE), state-owned parent China National Petroleum Corp. (CNPC) said on June 22.
First deliveries for the Shanghai contract are scheduled for September but it is not yet clear who will take delivery of the Chinaoil barrels. They will be used to generate warrants to prove ownership of the crude and can represent physical delivery on a future settlement date.
The move should go some way to alleviating the concerns of physical traders and other participants in the exchange that the final delivery of physical barrels when futures expire would be slowed or complicated by the involvement of numerous government agencies, including Chinese customs, border defence and inspection. This has until now deterred many from holding contracts until expiry.
“It is better to have the first cargo go through the process now, than later, providing longer time for the related parties to adjust if there are any problems,” said an unnamed trader in southern China.
The exchange is, however, already building liquidity fast, with volumes surging to a new record high last week. On June 21, trading volumes for the front-month September delivery crude futures contract hit 312,444 lots. This compares with just 40,656 lots traded on March 26 when the contract launched.
The Dalian storage site is owned by Dalian PetroChina International and is one of eight bonded storage sites on China’s coast that have been designated by INE as delivery points for the crude contract. Other sites are located in Shanghai and in the provinces of Shandong, Zhejiang and Guangdong.
The exchange has reserved around 20 million barrels worth of storage capacity for the contract. Crude stored in the designated warehouses must meet a number of INE requirements, including that it is directly loaded from the country of origin and is one of seven deliverable grades: Dubai; Abu Dhabi’s Upper Zakum; Oman; Qatar Marine; Yemen’s Masila; Iraq’s Basrah Light and China’s Shengli.