China’s crude futures kicked off to a roaring start on March 26 as western traders and Chinese majors eagerly traded the world’s newest financial oil instrument, which many expect to become a third global price benchmark alongside Brent and WTI crude.

Global commodity trader and miner Glencore, and big merchants Trafigura, Freepoint Commodities and Mercuria were among the first to trade the new contract, even as concerns remain that smaller overseas investors may struggle with unfamiliar rules and complex regulation.

The launch of the yuan-denominated oil futures—China’s first commodity derivative open to foreign investors—marked the culmination of a decade-long push by the Shanghai Futures Exchange to give the world’s largest energy consumer more power in pricing crude sold to Asia.

China is the world’s second-largest oil consumer and in 2017 overtook the U.S. as the biggest importer of crude oil. Its demand is already a key determinant of global oil prices.

With major overseas traders displaying a strong appetite to punt in China’s vast derivatives market, Shanghai’s turnover challenged Brent volumes during Asian hours, reflecting the potential for arbitrage trade with oil markets in the U.S., Europe and Oman.

“Whether this will have any real bearing on the other crude benchmarks, I’m not quite sure, but traders love a new toy, so I applaud China for bringing in something that could stoke up some volatility,” said Matt Stanley, a fuel broker with Freight Investor Services (FIS) in Dubai.

First-day enthusiasm saw 20 million barrels of September oil changing hands in Shanghai by the 3:00 p.m. (0700 GMT) close, but it’s not clear the pace will hold in the night session, which runs from 9:00 pm to 2:30 am, or on into coming days.

The 15.4 million barrels done in Shanghai’s 2-1/2-hour morning session initially topped the Brent May crude contract, before Europe’s benchmark came alive around 0500 GMT.

“We’ve seen already this morning it appears to be a liquid contract from the off,” said David Martin, JPMorgan Chase & Co’s Asia Pacific head of global clearing, at an event for the launch in Shanghai.

Arbitage Attraction

Analysts said western oil traders were attracted to Shanghai’s oil contracts for the potential arbitrage between China’s market specifics and global oil fundamentals as reflected by U.S. West Texas Intermediate (WTI) and international Brent crude futures.

WTI crude is the main benchmark for U.S. crude grades and a crucial hedging tool for the U.S. oil industry. Brent is priced off of North Sea oil and is a primary value marker for Europe, Africa and Middle East crudes. Both futures contracts are commonly used by financial traders.

“Prices assessed at the Shanghai exchange will reflect China’s crude supply and demand,” said Sushant Gupta, research director at energy consultancy Wood Mackenzie.

Despite the first-day success, the yuan-denominated trading and a blend of new rules and regulatory burdens could in the long-run hamper sustained take-up on the Shanghai International Energy Exchange (INE), executives at a dozen banks and brokers and experts involved in the launch told Reuters.

Still, China offers the potential for a deep, liquid market, buoyed by an explosion of interest from mom-and-pop investors that has supported its vast commodities derivative markets from apples to iron ore in Shanghai, Zhengzhou and Dalian.

The yuan-denominated contract will also help Beijing’s efforts to internationalize the nation’s currency, said Woodmac’s Gupta.

Western Merchants Active

A surprise to many was that Glencore executed Shanghai’s first crude deal. Swiss-based commodity traders Trafigura and Mercuria, U.S.-based Freepoint, and independent refiner Shandong Wonfull were other early participants.

“Glencore’s first bid reflected the high participation and enthusiasm of foreign traders for Chinese crude oil futures,” said Yang Xidong, general manager of Xinhu Futures Co. Ltd.

“We were active with Glencore today and I’ve seen Trafigura in it and Freepoint ... We take the view that the contract is viable and adds to the crude oil trading value chain, and is here to stay,” said Kevin Tan, executive vice president at Singapore-based brokerage Straits Financial Services.

Straits said it brokered the first trade for Glencore and cleared the deal through Xinhu Futures. Chinese trader Unipec told Reuters it was the counterparty for the Glencore deal.

The early involvement of big international traders was a morale boost to the fledging market, but state oil majors like PetroChina and Sinopec are expected to provide a significant amount of liquidity in the long-term.

Unipec, trading arm of Asia’s largest refiner Sinopec, has inked a deal with a western oil major to buy Middle East crude priced against the Shanghai futures contract, a senior company official said on March 26.

This could be seen as competition to the Dubai Mercantile Exchange’s (DME) crude futures and potentially the assessments published by price reporting agency S&P Global Platts.

Speculative retail and institutional investors also propped up the launch-day’s liquidity, said Chen Tong, Shanghai-based senior crude analyst at First Futures.

“In the short-term, we believe price fluctuations will reflect domestic crude oil supply and demand. In the long run, yuan crude price will mirror the moves of Brent,” he said.

Tale of the Tape

The most-active September ISCU8 contract opened at 440.4 yuan ($69.78) per barrel versus a reference point of 416 yuan, jumping as high as 447.1 yuan ($70.85) in the first few minutes.

The jump came after Brent futures for May delivery opened above $70 per barrel for the first time since January on expectations OPEC-leader Saudi Arabia may extend supply cuts into 2019, as well as over concern that the United States may re-introduce sanctions against Iran.

At the end of afternoon session, Shanghai prices were up 3.34% at 430.2 yuan, with 40,656 lots traded.

Brent and WTI, in contrast, were down by that time, weighed down by concerns over a looming U.S. trade dispute with China.

Chinese exchanges count each side of a trade—the buy and the sel— as two lots, meaning the total oil changing hands was 20,328 lots, equal to 20.3 MMbbl.