China launched the trading of crude oil options on the Shanghai International Energy Exchange on Monday and introduced overseas investors, in order to better manage the risks faced by both domestic and overseas entities, marking another big step in the country's financial opening-up.
The crude oil options, along with palm oil options that started trading at the Dalian Commodity Exchange on Friday, are the first yuan-denominated options contracts listed in China that are open to overseas investors.
The first batch of crude oil options expire in September and October, with a total of 96 contracts of call options and put options, China Central Television reported on Monday. In addition, the available cash in the margin accounts of entity traders should be no less than 1 million yuan ($155,000) in equivalent foreign currencies, and a minimum of 500,000 yuan for individual traders, it said.
Industry experts said the trading of crude oil options will provide more risk management tools for domestic companies such as oil refining and air transport, improve the industry's competitive capacity and the standing of domestic oil-related enterprises in international market.
Chinese oil refining enterprises' demand for better risk management is urgent amid wild fluctuations of crude oil prices lately, with their willingness to use commodity futures to hedge and stabilize production on the rise, Zhu Fang, deputy secretary-general with the China Petroleum and Chemical Industry Federation, said during the launch event on Monday. "The trading of crude oil options will enrich risk management tools," he said.
Currently, China has become the second largest crude oil consumer and largest importer. Zhu said that the country's consumption of crude oil has reached 736 million tons in 2020, of which about 73.5 percent are imported.
Pan Yixin, executive vice chairman of China Air Transport Association, said that crude oil options will also benefit domestic air transport companies.
Data showed that China is the second largest consumer of aviation fuel in the world, using approximately 1 million barrels per day in 2019, accounting for about 12.5 percent of global usage.
The consumption of aviation kerosene accounts for around 30 percent of airlines' total costs and therefore there is sharp demand from airlines for risk management of crude oil prices.
China launched crude oil futures contracts in 2018, which played an important role to stabilize prices amid the COVID-19 and bulk commodity price fluctuations.
Jiang Yan, chairman of Shanghai International Energy Exchange, said that the trading volume of Shanghai crude oil futures totaled 41.59 million transactions last year, worth 11.96 trillion yuan. He said that the price reflects the demand-supply relationship at the petroleum market in China and the Asia-Pacific region more accurately, serving as complement to US and EU crude oil futures.