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The medium sour crude oil contract, soon launching on the Shanghai International Energy Exchange (INE), will be the first Chinese commodity futures contract accessible to foreign investors. The principal driver behind the INE’s choice of crude oil as its first product is to allow China to develop its own benchmark for oil pricing while boosting trade in renminbi-denominated oil.

Authors: Jeffrey Yang

Physical settlement of crude oil futures contracts will be through the delivery of standard warrants representing crude oil, of the requisite grade, stored in bonded oil-storage facilities designated by the INE.

Although offshore access to futures markets for crude oil is not governed by the highest level of Chinese law, policies supporting offshore access to the futures markets were published in 2015, specifically targeting crude oil and iron ore, and have assisted in creating the necessary legal framework to enable offshore market participation. Among others, these policies provide for the VAT-free delivery of crude oil futures and provide the necessary conditions for access by overseas market participants.

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