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SHFE Endeavors to Improve its Energy Derivatives Series

Updated on Sep 28,2021

On September 27, 2021, S&P Global Platts held the 37th Asia Pacific Petroleum Conference (APPEC),which will last for three days. Mr. Wang Fenghai, CEO of Shanghai Futures Exchange (SHFE), participated in the online interview of "CEO Conversation", and introduced the development of Shanghai crude oil futures, low sulfur fuel oil futures and other energy related products, as well as how domestic and overseas enterprises effectively used derivatives for risk management and resource allocation. At the same time, Mr. Wang also elaborated on the blueprint of SHFE regarding energy transformation amid low carbon energy development.

Mr. Wang Fenghai pointed out that since the COVID-19 pandemic, global commodity prices have fluctuated greatly, and industrial enterprises’ demand for hedging is stronger. The participation of domestic and overseas enterprises in internationalized energy derivatives continued to increase. Taking Shanghai crude oil futures as an example, domestic and overseas oil companies, trading houses and financial institutions are more willing to use Shanghai crude oil futures (SC) as a risk management tool. From January to August 2021, the trading volume of Shanghai crude oil was 28.7798 million lots, with a turnover of 11.75 trillion yuan, up by 8.45% and 50.61% respectively year-on-year; the average daily open interests reached 83,200 lots. Since 2020, crude oils settled at SC prices have been shipped to India, South Korea, Myanmar, Malaysia, Japan and other countries after delivery; in this case, local refineries can obtain raw materials in a more convenient way. The price of SC has attracted more oil companies from relevant countries, and has become a distribution center price, reflecting the Asia-Pacific market. Shanghai crude oil futures, together with WTI and Brent, form a more comprehensive global energy price system to better serve the risk management needs of global participants.

Mr. Wang Fenghai believes that with the sharp increase in some of the commodity prices this year, enterprises should enhance their awareness of risk management and actively adopt various risk management tools to tackle the volatile prices of commodities. In this regard, SHFE continued to serve domestic and overseas investors in the coordination of resource allocation and risk management by opening itself up both at the product level and at the rule level. On the one hand, we have increased product supply and improved the exchange related rules. Since 2020, we have successively launched three international derivatives, which are low sulfur fuel oil futures, bonded copper futures and crude oil options. In addition to this, SHFE has also launched two domestic options, including aluminum and zinc options. Besides, we have also launched TAS orders, and innovative trading and delivery modes, such as “domestic delivery + overseas take-delivery” to enrich the risk management tools for industrial enterprises. On the other hand, through joint marketing with many international institutions and strengthening cooperation with industrial enterprises, we will continue to strengthen market cultivation, foster the interactions between futures and spot markets, and promote more entities globally to understand and utilize the Shanghai futures market.

Mr. Wang Fenghai said that the world has entered an era of developing green and low-carbon energy. SHFE is actively developing products anchoring the goal of "accelerating green and low-carbon transformation and realizing green recovery and development", accelerating the listing of natural gas futures and options, and developing other futures, such as cobalt, hydrogen and ammonia. In addition, SHFE will cooperate with other institutions to explore the incorporation of “carbon emission peak and carbon neutrality” goals and ESG into the futures market, and promote the construction of a derivatives market mechanism that meets the goal of "building a community of human and natural life".

According to sources, APPEC is one of the most influential oil industry knowledge sharing and communication platforms with high standards and comprehensive topic coverage in the Asia-Pacific region. This year, speakers from more than 20 countries shared their views towards the current market and its prospect from both online and on-site.



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