Asia is falling further behind the United States and Europe in financial oil trading despite being the world’s biggest fuel-consuming region, exposing refiners to the vagaries of speculators.
While China’s Unipec vies with Europe’s Vitol to be the top global crude trader, Asian might in physical markets has not spilled over into international futures trading.
Data shows crude futures trading in Asia is stagnant, while volumes in Europe and North America have set records in the past year. Also, the largest price movements occur outside Asian office hours.
That is a problem for producers, refiners and traders in Asia – which could spur China’s ambitions to launch a long-delayed crude futures contract that would better reflect regional market conditions.
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“It’s a risk to commit to selling or buying during Asian hours – you never know what moves will follow in night trading hours,” said strategist Kaname Gokon at commodity brokerage Okato Shoji in Japan.
Data shows activity in Brent crude oil futures in the Asian day rarely tops 2,000 lots of 1,000 barrels an hour, against 30,000-50,000 lots in European or North American hours.
Behavioural changes in the markets are one factor. Canadian investment bank RBC Capital said this week that oil markets were being increasingly led by “tourist traders” rather than real market conditions.
“Market intelligence has been diluted in recent years given the rise of algorithmically charged participants, from what was a physically driven market,” RBC said.
US and European refiners and producers can also be hit by speculators, but many Western oil majors such as Royal Dutch Shell have large financial trading desks that help them counter and make money from big market moves.
So far, Asia has played only a marginal role in the rise in crude futures trading.
That could change as China steps up efforts this year to launch its much-awaited Shanghai crude futures contract.
“China wants a seat at the global energy futures table, and is actively encouraging commodity trading and investment,” said Mr John Driscoll, director of JTD Energy Services in Singapore.