Middle East Tensions Support Crude Oil Price at $70 Per Barrel

Middle East Tensions Support Crude Oil Price at $70 Per Barrel

Middle East Tensions Support Crude Oil Price at $70 Per Barrel

Analysts said western oil traders were attracted to Shanghai's oil contracts for the potential arbitrage between China's market specifics and global oil fundamentals as reflected by U.S. West Texas Intermediate (WTI) and worldwide Brent crude futures. While global stockpiles are tightening in a sign that the Organization of the Petroleum Exporting Countries and its allies' production cuts are working, fears still remain that surging US production could thwart those efforts. Brent is priced off of North Sea oil and is a primary value marker for Europe, Africa and Middle East crudes.

Futures contracts fix prices today for delivery at a later date.

The regulator "has the confidence, resolution and capability to build a sound crude oil futures market", Liu Shiyu, chairman of the China Securities Regulatory Commission said at the Shanghai Futures Exchange before trading got under way.

Geopolitical factors have also offered support. Yuan-denominated oil is seen as a crucial part of internationalising the yuan as a global currency, but that goal can never really be attained while Beijing insists on maintaining current levels of control over its capital account.

"The rules around trading methodology will be unfamiliar for western houses", said John Browning, chief operating officer of Hong Kong-based futures broker Bands Financial Ltd, which is an approved overseas intermediary for the INE.

"President Donald Trump continues to suggest the U.S. will pull out from (the) Iran nuclear deal, which raises the spectre 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.

At 1122 GMT, May WTI crude oil is trading $65.82, up $0.27 or +0.41% and June Brent crude oil is at $69.78, up $0.26 or +0.37%. Chinese trader Unipec told Reuters it was the counterparty for the Glencore deal. While the commodity has been weighed down by United States supply concerns in the past, crude oil has moved up sharply in the past few weeks.

In Asia, crude oil is mainly priced against the Dubai, Oman and dated Brent benchmarks or Oman crude futures on the Dubai Mercantile Exchange. "In the long run, yuan crude price will mirror the moves of Brent", said Chen Tong, Shanghai-based senior crude analyst at First Futures, as quoted by the news agency. Our short-term outlook and medium-term outlook on crude oil is bullish. Brent crude is now above $70.20.

The price of SC1809 contracts started at 440 yuan per barrel and closed at 429.9 yuan per barrel, which is 3.34 percent higher than the benchmark price.

The price of Brent hit $71 per barrel in the middle of January, despite surging production by the United States, which is offset by the production cuts led by the Organisation of Petroleum Exporting Countries (OPEC) and Russian Federation.

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