1. Update on China Crude Oil Futures
Market & Products Department, INE

2. Outline Introduction of China Futures Market Structure
Design of China Crude Oil Futures
Update on the Development of China Crude Oil Futures
Summary & Near-Term Plan

3. Introduction of China futures market structure

4. Shanghai Int’l Energy Exchange, INE 各地证监局 Regional CSRC Bureaus
China’s Futures Market Structure
中国证监会
CSRC
期货交易所
EXCHANGES
上海期货交易所SHFE
上海国际能源交易中心
Shanghai Int’l Energy Exchange, INE
大连商品交易所DCE
郑州商品交易所ZCE
中国金融期货交易所CFFEX
各地证监局 Regional CSRC Bureaus
中国期货业协会
CFA
中国期货市场
监控中心CFMMC

5. SHFE Group INE Shareholder Structure SHFE SFIT INE 100% 99% 1%
Shanghai Futures Exchange
INE
Shanghai International
Energy Exchange
SFIT
Shanghai Futures Information Technology
100%
99% 1%

6. Planned INE Productline
Listed on INE
Listed on SHFE**
Copper***
Aluminum
Rubber
Rebar
Gold
Bitumen
Zinc
Lead
RMG380 Fuel Oil
Wire-rod
Silver
Hot Rolled Coil
Crude Oil
To be listed on INE
LPG
Gasoline
Electricity
Jet Fuel
Rubber #20
LNG
Diesel
**SHFE is ranked 9th in FIA Futures Exchange Annual Volume of 2017
***Most popular in China and well known globally

7. Milestones of China Crude Futures Market
~07
*INE SC First Delivery
State Council’s Decision in Modifying《Regulation on the Administration of Futures Trading》
CSRC《Policy on Capital Market Supporting China FTZ (Sanghai) 》
INE was registered and setup
CSRC Approval of the launch of INE Crude Contract
NDRC’s Notice on《Management of Imported Crude Oil》
Ministry of Finance/State Administration of Taxation’s Notice on 《the Value-Added Tax Policies for the Bonded Delivery of Crude Oil and Iron Ore Futures Contracts》
CSRC《Interim Measures for the Administration of Overseas Traders’ & Brokers’ Engagement in the Trading of Specified Domestic Futures Products》
PBOC Circular on 《Strengthen the administration of cross-border settlement of trades of domestic crude oil futures》
Ministry of Commerce Notice on 《 Preparation for Non-state Owned Entities Application for the Oil Import Qualification 》
SAFE Circular on《 Foreign Exchange Administration for Overseas Traders and Brokers Engaging in Futures Trading under Specific Domestic Categories》
Customs Announcement on 《 The Bonded Delivery of Crude Oil Futures Contracts》
INE Finalized and Published Exchange Bylaw and Rules
AQSIQ Announcement on “Inspection and Supervision of Crude Oil for Futures Delivery”
MOF , SAT & CSRC’s Circular on “Tax Policy Supporting the Open-up of Futures Market on Crude Oil and Other Commodities
Crude Futures Launched

8. Design of China Crude Oil Futures

9. Design Framework Medium Sour Crude Denomination Trade Price
Denominated in RMB & accepting foreign currencies as margin collaterals
Net Pricing—Quoted price net of custom taxes or VAT
Bonded Physical Delivery—Using standard bonded storage warrants
Onshore and Offshore Participants
Medium Sour Crude
Denomination
Trade Price
Delivery Mode
Participant Types
Underlying
Globalized Platform ,RMB Denomination, Net Pricing & Bonded Delivery

10. Crude Oil Futures Contract Spec.
Underlying
Medium Sour Crude Oil
Contract Unit
1,000 Barrels/lot
Price Quotation
Yuan（RMB）per barrel（Net quotation price）
Tick Size
0.1 Yuan（RMB）per barrel
Daily Price Limit
4% above or below the previous day’s settlement price for such contract month
Listed Contracts
Monthly contracts of recent twelve (12) consecutive monthly contracts starting with the month immediately following the current calendar month followed by eight (8) quarterly contracts
Trading Hours
9: :30 a.m. and 1:30 - 3:00 p.m., Beijing Local Time; and other hours designated by INE
Last Trading Day
The last business day of the moth preceding the delivery month. INE is entitled to adjust the last trading day in accordance with China National Holidays
Delivery Period
5 consecutive business days after the last trading day
Grade and Quality Specification
Medium Sour Crude Oil, for which the benchmark quality are: the gravity 32 degree API and sulfur content 1.5% by weight. The grades of crude acceptable for delivery and the price differentials are stipulated by the Exchange
Delivery Points
Locations designated by the Exchange
Minimum Margin
5% of contract value
Settlement Type
Physical Delivery
Product Code SC
Listing Exchange
INE

11. Underlying Commodity Medium Sour Crude By API By Sulfur Content
API Gravity
Sulfur Content
Nitrogen
Paraffin Wax
Gel Content ……
By API
By Sulfur Content
Classification
API
Content (%)
Light
＞34
Sweet
＜0.5
Medium
20~34
0.5～2
Heavy
10~20
Sour ＞2
Extra Heavy
＜10
Remark：The classification of crude grades by API and sulfur content are varied by countries. Please be noted above classification may not matched with other region’s owned classification

12. Oil Production Classification by Quality
Underlying Commodity
Medium Sour Crude
Oil Production Classification by Quality
Source：ENI《World Oil and Gas Review 2017》

13. Underlying Commodity Medium Sour Crude
China Crude Imports 2017

14. Deliverable Grades, Quality Specification and Price Differentials
Deliverable Grades, Quality Specification and Price Differentials
INE Circular [2018] No. 2 
Nation
Deliverable Crudes
Minimum
API Gravity
Maximum Sulfur (%)
Price Differential
(Yuan / Barrel)
United Arab Emirates
Dubai 30
2.8
Upper Zakum 33
2.0
Sultanate of Oman
Oman
1.6
State of Qatar
Qatar Marine 31
2.2
Republic of Yemen
Masila
0.8 5
Republic of Iraq
Basra Light 28
3.5 -5
People’s Republic of China
Shengli 24
1.0
1. API gravity = (141.5 / S.G.60/ 60 °F) – 131.5; S.G.: as per ASTM D1298
2. Sulfur content: as per ASTM D4294.

15. Designated Delivery Hubs
Currently the approved storage capacity is 5.15million m3, among which 2.85 million will be put in use in Phase 1, and the other 2.25 million are backups.
The storage capacity in Phase 1 is 2.6 million tones, which is about the capacity of 8 VLCCs.
INE is still reviewing other depots, among which private and foreign owned are among them.

16. Supporting Policies
Date
Policy
Circular No#
26-JUN-2015
OVERSEAS PARTICIAPTION: CSRC’s Interim Measures for the "Administration of Overseas Traders’ and Overseas Broker’s Trading of Specified China Futures Contracts”, in which INE crude is defined as one of the Specified Contracts
CSRC Order #116
20-JUL-2015
FX: PBOC’s Circular on the "Administration of Cross-border Settlement for Onshore Crude Futures Trading”
PBOC Circular [2015] No.19
31-JUL-2015
FX: SAFE’s Circular on the “Notice on the Administration of Foreign Exchange for Overseas Traders’ and Overseas Broker’s Trading of Specified China Futures Contracts
Huifa [2015] No. 35
20-Aug-2015
Customs: GACC’s Circular on “Customs Administration for Bonded Delivery of China Crude Futures Contract”
GACC Circular[2015] No. 40
13-Mar-2018
TAXATION: Futures Trading and Income Tax Exemption for offshore institutional and individual traders temporarily.
Caishui [2018] No. 21

17. Global Participation Accesses Overseas Intermediary
Globalized Platform
Overseas Participation Accesses
Global Participation Accesses
Access 1：Futures Firm
SHFE-INE
Overseas Intermediary
Access 2：Futures Firm
Overseas Investors
Access 3：OSBP
Access 4：OSNBP
Note: For accesses 3 & 4, An OSP(Overseas Special Participant) trades shall be cleared by a Futures Firm

18. Designated Depository Bank
Government FX Policy for the INE Crude Futures X
Onshore Bank accounts
USD
USD
SHFE-INE FF
NRA
Overseas Participant
CNY
CNH
Designated Depository Bank
Crude futures is denominated and traded in RMB. Overseas investors may use USD or CNH to serve as margin
RMB is the only acceptable denomination currency in making up losses for the trade or in daily Mark-to- Market. Overseas Participant can designate to settle his/her trading or daily mark-to-market profit in either USD or CNY. Change of designated currency may be made twice a year.
Under the NRA bank account for crude futures trading, there is no cap on the fund transfer between onshore and offshore. However, position limit rule is applied.
Exchange of currency can be executed for the purpose of crude futures trading only .

19. Tax Exemption Income Tax Policy for Overseas Traders and Brokers
Overseas institutional investors and brokers income from futures transaction is excluded from the taxable income base temporarily
Overseas brokers’ revenue/income from the commission collected from customers’ futures transaction is excluded from the taxable income base.
Overseas retail investors’ income from futures transaction is also excluded from the taxable income base for up to three (3) years starting from 26-Mar, 2018.

20. Custom Policy
Bonded delivery: Seller in the futures market does not need to have the Crude Import Qualification and Quota approved by the Ministry of Commerce
Bonded goods for futures delivery refers to goods stored in a specified location or bonded area that are supervised by the Customs District.
In practice, crude futures delivery requires seller to deliver eligible bonded oil warrants, and buyer to deliver the fund for the settlement to the Exchange to complete delivery obligation
Different sets of rules and requirements are applied to bonded crude oil delivery, Import of crude oil and domestic crude trading separately
After taking a bonded delivery, if a trader wishes to import the crude into China, they need to meet the importing requirements set in relavant rules.

21. Update on the China Crude Oil Futures

22. Structure of Participant Types
Normal Specific Retail Institutions Institutions
Retail Normal Specific Institutions Institutions

23. Onshore v.s. Offshore Participant Structure
Onshore Offshore
Onshore Offshore
Onshore Offshore

24. Who Were There on the First Trading Day ?
On 26-Mar, 2018, the launch date of INE Crude, there were 413 investors participate in the market open auction, and a total of 261 lots was matched in the first trade at the price of RMB 440/bbl.
Top List of Investors of the First Trade: China Oil China, UNIPEC ASIA CO. LTD. HK, CNOOC China, SINOCHEM China, NORTH PETROLEUM INTERNATIONAL CO. LTD. HK, TWINACE OIL, China, WONFULL China, TRAFIGURA PTE LTD Singapore, GLENCORE PTE. LTD., Singapore, Freepoint Commodities Pte. Ltd. Singapore, BOCI Global Commodities LTD

25. Trading Volume & OI Trading Volume and OI SC Dominant Contract Price
Daily Volume MA of Vol OI Avg. OI
As of 31-Aug-2018, accumulated Volume of the China crude contract since launch is 22.18million lots with daily average volume of 201K lots and avg. daily OI of 29,680 lots (counting buy and sell sides)
Since the launch on 26-Mar, 2018, the contract’s front line price range is in line with global benchmarks in general. However, it’s also exploring its owned price pattern of the oil consumption market.

26. Price Relationship between Benchmarks
As of 28-Jun-18
相关系数
WTI
Brent
Oman
INE-SC
100.0%
76.2%
68.6%
66.1%
98.3%
94.6%
95.0%
Price Relationship with Global Benchmarks
As of 31-Aug-18
相关系数
WTI
Brent
Oman
INE-SC
100.0%
75.1%
69.4%
47.9%
95.0%
42.3%
62.6%
Calculation of price correlation is based on the prices of each futures contract’s closing price
The contract is still exploring its price discovery function, while the movement is in line with global benchmarks, such as WTI, Brent and DME’s Oman

27. SC v.s. Global Benchmarks at the Beginning Phase
It took NYMEX three years to reach the daily trading volume of 50,000 lots for WTI contract
It took IPE five years to reach the daily trad trading volume of 50,000 lots for Brent contract

28. SC v.s. Global Benchmarks at the Beginning Phase
It took more than half year for 2 major oil futures contracts to build up open interests of 10,000 lots

29. SC v.s. Global Benchmarks on Liquidity
注：3月26日至8月17日均值 Note: Average daily value during period 26-Mar to 17-Aug, 2018

30. Summary & Near-term Plan

31. Media Focus: IEA oil market report 2018.04
liquidity
Intervention
Transparency
Volatility
Trading hours
Market liberalization
Authority respond
Instrument of Physical transaction and hedging
benchmark of outright price marker
More representative
Improve transparency
More competitive pricing
Tax holiday/Relaxation of capital control

32. Media Focus: OPEC monthly oil market report 2018.04
Government interference
Currency risk
Liquidity
Limited physical buyers
Volume & OI are the keys
More useful regional marker
Price discovery
Help business to avoid risk
Regional benchmark

33. Summary A good start with stable growing trading volume and OI
Market price discovery function has been preliminary developed
Still a gap to catch up with well developed global benchmarks

34. 展望/Near-Term Plan RMO Registration with MAS
On- & Off-shore Market Education and Promotion Plan
Onboarding global ISV vendors
Continue Improvement on the Market Efficiency by introducing Market Makers
Continue Improvement on Globalizing Exchange Rules

35. Disclaimer
Futures trading is not suitable for all investors, and involves the risk of loss. Futures are a leveraged investment, and because only a percentage of a contract’s value is required to trade, it is possible to lose more than the amount of money deposited for a futures position. Therefore, traders should only use funds that they can afford to lose without affecting their lifestyles. And only a portion of those funds should be devoted to any one trade because they cannot expect to profit on every trade. All references to options refer to options on futures.
The information contained in this document is compiled and edited by the Shanghai International Energy Exchange (INE) for general introduction of crude oil market only. Although we endeavor to provide reliable, accurate and complete information, there cannot be guarantee that such information is accurate or complete and INE assumes no responsibility for any errors or omissions.
The information provided in this document is for reference only and should not be construed as a prospectus; a solicitation to buy or sell any investment. INE is not responsible for any profits or losses associated with using information in this document.