The Shanghai International Energy Trade Center recently began operations, planning to introduce the nation's crude oil futures and attract foreign funds to invest in domestic futures trading, but it remains to be seen whether it can break the pricing monopoly by foreign countries, Shanghai's China Business News reports.

The move, however, should open a window for China to control partial price fixing for crude oil futures trade, the report said.

Oil price fixing refers to the crude prices for long-term trading contracts in the international crude oil market, which exerts incredible power over the crude oil and chemical industries. Usually, crude oil prices in one or several crude oil markets are used as the base price in addition to added premiums or discounts.

The oil prices from wholesale to retail and from spot to long-term contracts are all directly or indirectly based on the prices of the spot markets such as Singapore, the Amsterdam-Rotterdam-Antwerp area, Houston and New York as a reference, said Vandana Hari, editorial director at Platts Asia-Pacific.

As the oil has high liquidity with enough volume, its prices are comparatively independent and transparent, Hari said.

From the 1970s to the mid-1990s, China had been self-sufficient when it came to crude oil, and for a long time, China's crude oil prices had followed the overseas spot crude oil prices, said Golden State Securities analyst Liu Bo.

Around the year 2000, demand for crude oil in China gradually increased and in September 2013, China surpassed the United States to become the world's largest consumer of foreign oil, importing a daily average of 6.3 million barrels of oil, surpassing the US daily average of 6.24 million barrels. In 2013, although the growth for China's crude oil imports slowed down, it still rose 4% to 280 million tonnes. China is expected to import a daily average of 9.2 million barrels of oil in 2020, leading global energy consultancy Wood Mackenzie projected.

Although China has won biddings in major oil fields such as Iraq, the exploration expertise of these Chinese firms in oil fields is limited, which means it will be difficult for China to obtain the right to fix oil prices.

Hari believes that according to past experience, the threshold for obtaining the right to set the oil prices is an open market, free trade and transparency. Currently, various players internationally plan to let the Shanghai crude oil future contracts become the mechanism to set sour crude oil prices, but the agencies should be prudent and set prices that the market will accept whilst still representing Asia, Hari said.

(wantchinatimes.com Feb 4, 2014)