Outlook on Energy Price Benchmark Market and Overview of SC Crude Oil Futures

Mr. JIANG Yan Chairman, SHFE and INE 27 February 2019 Riyadh, Saudi Arabia

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.

APAC,

35.20%

Africa,

4.10%M.E.

9.50%

N.A.

24.70%

Europe

15.30%

C&S.A,

6.90%CIS, 4.40%

Regional Oil Consumption in 2017

Steady Volume and Share Increase of Asia Pacific Oil Consumption

N.A.: North AmericaC&S.A: Central and South AmericaM.E.: Middle EastAPAC: Asia PacificCIS: Commonwealth of Independent State

N.A.

29.2%

C&S.A

5.4%

Europe

35.7%

M.E.

5.5%

Africa

3.0%

APAC

21.1%

Regional Oil Consumption in 1990

N.A.

29.7%

C&S.A

6.4%Europe

25.9%M.E.

6.8%

Africa

3.3%

APAC

27.9%

Regional Oil Consumption in 2000

Data：BP

3

30.00%

35.00%

40.00%

45.00%

50.00%

55.00%

60.00%

65.00%

70.00%

75.00% 美国 中国

China: 2nd Largest Oil Consumer, Highly Depend on Import

Data：BP4

- 5000 10000 15000 20000 25000

加拿大

德国

韩国

巴西

俄罗斯

沙特阿拉伯

日本

印度

中国

美国

2017 Oil Consumption by Country（kb/d）

U.S.

China

India

Japan

Saudi Arabia

Russia

Brazil

S. Korea

Germany

Canada

Data: EIA, National Bureau of Statistics, Customs

U.S. China

Crude Oil Consumption Dependency on Overseas Import

WTI Futures Brent Futures Dubai / Oman OTC Assessment

CME WTI

DMEOman

SHFEINE

ICEBrent

TOCOM

MCX

MOE

Regional Crude Oil Benchmarks

5

SC: Middle Eastern Crude CRF Price to North-East Asia

Middle East Crude FOB

SC

Nation Deliverable Crudes

United Arab Emirates DubaiUnited Arab Emirates Upper ZakumSultanate of Oman OmanState of Qatar Qatar MarineRepublic of Yemen MasilaRepublic of Iraq Basrah LightPeople’s Republic of China Shengli

RMB denomination, accept USD as margin

Net Pricing— No Tariff or VAT

Bonded Physical Delivery

Onshore and Offshore Participants

Medium Sour Crude

Currency

Trade Price

Delivery Mode

Participant Types

Underlying

Lot size: 1000 bbls

Contracts listed : up to 36 months

6

Price of Producing Region and Consuming Region

FOB Middle East Oil

Freight,Insurance

Other Cost SC Price

Producing Region Price

Consuming Region Price

Regional Supply and

Demand 7

Market Size Increases Steadily

• From launch day to 15-Feb-2019, accumulated trading volume of the China crude contract was 33 million lots, with daily average volume of 150k lots.

• On 7-Dec-2018, the single-day trading volume reached historical high at 360k lots.

• It took NYMEX WTI 3 years and IPE Brent 5 years to reach an average daily trading volume of 50k lots equivalent.

• At close of 15-Feb-2018, total market open interest was 37k lots, with daily average open interest at 21k lots.

• Note: above numbers are counting single-sided

Jan-2019 Trading Volume Market Share

CME WTI53%ICE Brent

35%

INE SC12%

DME Oman

0%

0112233445

05

10152025303540

2018

-3-2

620

18-4

-10

2018

-4-2

320

18-5

-820

18-5

-21

2018

-6-1

2018

-6-1

420

18-6

-28

2018

-7-1

120

18-7

-24

2018

-8-6

2018

-8-1

720

18-8

-30

2018

-9-1

220

18-9

-26

2018

-10-

1620

18-1

0-29

2018

-11-

920

18-1

1-22

2018

-12-

520

18-1

2-18

2019

-1-2

2019

-1-1

520

19-1

-28

2019

-2-1

5

SC Trading Volume and OI

Trading Vol Daily Avg Vol OI Daily Avg OI

8

Offshore Participation

Account Number Trading Volume

Onshore Offshore

Open Interest

Note: as of Feb 15, 2019

48 Overseas Intermediaries

9

Delivery Went Smoothly

Mar 26th

SC started trading

Jun 20th

First shipment of crude oil arrived at

Dalian

Jun 26th

First Crude Oil Warrant Issued for

500kb

Aug 31st

Last trading day of SC1809, which was the

first SC contract

Sep 7th

Delivery cycle completed with 601kb of crude oil delivered

60.1

14.40.8

209.6

251.3

4.2

0

50

100

150

200

250

300

SC1809 SC1810 SC1811 SC1812 SC1901 SC1902

In 10kb

By Feb 2019, 6 contracts have

completed their delivery cycles

(SC1809, SC1810, SC1811,

SC1812, SC1901, SC1902), with

a total amount of 5.4 million

barrels delivered.

• In April 2018, Shell and Unipec entered into a one-year crude oil trading contract using INE SC prices as benchmark

• Contract tenor: Sep 2018 – Aug 2019

• In Oct 2018, Unipec and one Chinese independent refinery signed a contract trading 350kb of middle eastern heavy and sour crude based on INE SC1812 prices

Total Size of Warrants Delivered

10

RankingExchange Name

Volume (100mn lots) YoY

Growth2018 2017 2018 20171 1 Shanghai Futures Exchange (SHFE) 12.02 13.64 -11.90%

2 2Chicago Mercantile Exchange Group

(CME Group) 11.82 11.32 4.43%

3 3 Dalian Commodity Exchange (DCE) 9.82 11.01 -10.84%

4 5Zhengzhou Commodity Exchange

(ZCE) 8.18 5.86 39.57%

5 4 Intercontinental Exchange (ICE) 7.97 7.85 1.54%6 6 Moscow Exchange (MOEX) 4.78 4.91 -2.64%

7 7Multi Commodity Exchange of India

(MCX) 2.30 1.99 15.97%

8 8 Hong Kong Stock Exchange (HKEX) 1.85 1.58 17.53%

9 9

National Association of Securities Deal Automated Quotations Group

(NASDAQ Group)0.24 0.52 -54.43%

10 10Tokyo Commodity Exchange

（TOCOM） 0.24 0.24 -2.32%

Chinese Futures Market and Futures Exchanges

Source: FIA

Global Exchange Traded Commodities Market Share (2001-2018)2018 Top 10 Global Commodity Exchanges

Vol(100 mnlots)

Mkt Share%

Trading Vol, Other Countries / RegionsTrading Vol, Mainland ChinaTrading Vol, United StatesMarket Share, United StatesMarket Share, Mainland China

Source: FIA

11

Outlook on Pricing Benchmark Market

Increasing uncertainties in oil supply, demand and macro economy

Increasing fluctuation in energy prices

Greater importance of benchmark market for price discovery and hedging

purposes

Opening up of Chinese futures market provides international solution

12