China Launches Yuan-denominated Oil Futures

China launched yuan-denominated oil futures contracts on Monday, marking the first time foreign investors will have access to Chinese commodity futures as the world's top crude importer seeks greater influence over global prices.

But analysts said the long-delayed Shanghai-traded futures are unlikely to challenge the primacy of New York and London-based futures any time soon due to Chinese capital controls and the entrenched position of the dollar-denominated contracts.

Futures contracts allow investors to hedge exposure to physical prices, and offering them in yuan could allow energy-hungry China – which last year surpassed the United States as the world's largest crude importer – to exercise more control over prices of the type of oil it consumes most.

It also is the latest in a series of steps by China to raise the world profile of the yuan.

The new contracts are "rooted in China's ambition to increase its bargaining power to price energy supplies amidst an increasing reliance on oil imports", energy industry information provider ICIS said in a research note.

"If the demand for [yuan contracts] came at the expense of the US dollar, there is always a chance, however slim, that the Chinese yuan could displace the US dollar as the main petro-currency."

But analysts said Chinese capital controls will likely discourage hefty foreign engagement, as will wariness of the often wild gyrations in China's still relatively immature financial markets. (AFP)