PetroChina eyes major role in oil pricing

Chinese oil and gas giant PetroChina's partnering with some of the world's biggest energy companies to launch a new crude oil futures exchange in the Middle East, is an important move for the company to better leverage the international crude oil trading mechanism to gain profits and hedge losses, analysts said.

Abu Dhabi's state oil producer, Abu Dhabi National Oil Co, or Adnoc, recently said it had teamed up with Intercontinental Exchange Inc, and nine energy-market behemoths, namely BP, Total, Inpex, Vitol, Shell, Petro-China, South Korea's GS Caltex, Japan's JXTG and Thailand's PTT, to launch a new futures exchange in the United Arab Emirates and set up the world's first Murban crude oil futures contract.

Murban crude oil is a flagship crude oil product from the region. It is also the first time that PetroChina is being part of an overseas crude oil futures exchange.

Analysts, including Han Xiaoping, chief researcher at industry and energy website china5e.com, said the listing of Murban futures contracts is a move by the oil producers and traders to rival well-established crude oil bench marks such as Brent and West Texas Intermediate.

Qu Xinrong, senior supervisor of the index research and development department, Shanghai Petroleum and Natural Gas Exchange, said PetroChina's decision to be part of the new bourse will help it gain more insights into the crude oil pricing mechanism, and thus avoid losses, apart from probably getting a share of the exchange's profits.

"Without an accurate understanding of the operating mechanism and the pricing logic of crude oil futures contracts, such as Brent and WTI, it is easy to lose in the market without knowing why, like what happened to China Aviation Oil (Singapore) Co Ltd," he said, referring to the company's loss of $550 million from oil derivatives trading in 2004.

He also said it would be some time before it can be gauged whether the Murban futures contract can rival other mainstream crude oil bench marks.

Yet PetroChina's share in the new exchange will have no direct influence over China's presence in international crude oil pricing mechanism, because if China wants to have a higher say in global crude oil prices, it is more important to build up capabilities of Chinese marketplaces to have a strong presence in the global market, rather than trying to influence global pricing, he said.

"The most important thing to do is to create an agreeable business environment supported by a vigorous financial market with quality service providers, so that international players will recognize and cannot operate without the future contracts market in China," he said.

China is increasingly gaining a greater presence in the global crude oil market in recent years, due to the internationalization of its currency, the launch of yuan-denominated oil futures, and easier access to the global crude oil market for domestic buyers, he said.

The Murban futures contract, to be hosted on the new exchange named ICE Futures Abu Dhabi, will allow global buyers to hedge risks and gain more value from the company's oil output, Adnoc CEO Sultan al-Jaber said during an energy forum, according to Reuters reports.