A closer look at China’s new crude oil futures contract and the impact of geopolitics on the oil & gas market.
China’s new crude oil futures contract and the impact of geopolitics on oil & gas.
When it comes to energy markets, China is often regarded as a dominant force. This is evidenced by the long list of it being “the world's largest…” importer of crude oil and coal, being the biggest global investor in renewables and having the largest car market in the world. China is also on track to become the largest importer of natural gas (in the form of pipeline gas and LNG).
One of the factors that will contribute to China's continued dominance in the demand for energy is the soon to be launched oil futures contract.
Summarized, the futures contract will have the following:
The new crude oil futures contract has the potential to give the Chinese buyers more control over its pricing, and further concentrate demand to the grades preferred by Chinese refineries. Importantly, it gives Chinese refiners a more targeted way in which to manage their refinery margins. Of particular concern for users of the contract will be the Chinese government's practice of market interventions (e.g. crude oil import quotas), currency controls and monetary policy.
- Oliver Hsieh, Director, Commodity & Energy Risk Management, KPMG in Singapore
Geopolitics continue to play a significant role in the oil-and-gas scene. From the Venezuelan elections to US relationships with Iran and Russia-Ukraine gas transit issues, the industry is experiencing significant political effects contributing to more stable hydrocarbon prices in the short-term. There are certain signs that the US shale production break-even point may have bottomed out as sweet spots are more difficult to find.
From a longer-term perspective, bullish views on the future electrification of the transport sector make long-term oil demand forecasts highly uncertain, thus limiting the odds of the over 70 USD oil-pricing scenario. Therefore it remains to be seen whether any 2018 developments will make the outlook more definitive.
- Anton Oussov, Global Head of Oil & Gas and Head of Oil & Gas in Russia and the CIS, KPMG in Russia
Note: The forecasts/analyst estimates above from Brent & Henry Hub are an indication based on third party sources and information. They do not represent the views of KPMG.