China is expected to achieve fast growth for its oil futures market with its initial success in trading fuel oil products at the Shanghai Futures Exchange.

The trading, which started on August 25, had obtained a combined deal of 52.29 million tons of fuel oil by November 30, valued at 115.2 billion yuan (US$13.9 billion), Peng Junheng, deputy general manager of the exchange, said at a seminar yesterday on fuel oil futures and spot markets.

The seminar, sponsored by the exchange and Shihua Financial Information, aims to further push forward the development of China's oil futures market by discussing China's oil system, the international oil market and the prospects for more developed trading.

"The initial success has created a sound base for the trading of new oil futures products," said Peng.

He told the participants what the exchange will do next is to make preparations for trading diesel oil and gasoline futures based on the experience gained from the trading of fuel oil.

His words were echoed by Liao Yingmin, an official from the Development Research Centre of the State Council, who suggested that more oil futures products should be traded at the exchange.

"Doing so aims to provide a means and place for Chinese petroleum companies, oil customers and traders to avoid the risk caused by fluctuating prices on the international oil market," said Liao.

"With a developed oil futures market, China is able to have a say on the world's oil market."

"But there is no timetable at the moment for the trading of new oil futures products, which will depend on the further reform of China's oil circulation system," said a source with the exchange.

The source said the exchange is now improving its computer trading system by co-operating with computer companies and learning how to manage risk control in trading of more oil futures products.

Liao said the country must step up the reform of the country's oil circulation system to adapt it to the market system.

"The current system is too weak to challenge fierce competition from overseas counterparts," she said.

China has been considered as the world's largest potential market in this field, and is facing a large influx of foreign oil companies.

"They are vying with each other for a large share of the Chinese market," Liao said.

They want to enlarge their market shares in China by launching joint ventures with their Chinese partners or through acquisition of shares of Chinese petroleum companies.

"Negotiations are under way with major Chinese petroleum companies about setting up joint venture filling stations," she said.

Liao called for efforts to form several large petroleum comprehensive companies to work together with a large number of sales companies to establish China's own oil circulation model favourable to the oil spot market and oil futures market.

"To reach the goal, China needs to further improve its trading environment by embracing transparency though it is painful and needs more participation from traditional players at home and abroad," to provide global energy information, research and marketing services, said Dave Ernsberger, editorial director of Asia Platts, Singapore, a division of the McGraw-Hill Companies.

He said, thanks to the futures exchange, China's fuel oil futures price has been closely related to the world's, but prices of diesel oil and gasoline are separated from the world market system.

(China Daily December 3, 2004)