Locational arbitrage strategies for Shanghai crude futures

Hélyette Geman, John Miller and Yuanye Ma

Journal of Energy Markets

Abstract: This paper analyzes the crude oil futures introduced on the Shanghai International Energy Exchange in March 2018 and the locational trading strategies they can provide. First, we briefly recall some features of the Brent, WTI and Oman reference indexes. Then, we focus on the Shanghai crude oil futures contracts and their unique optionality feature in terms of delivery location and crude oil chemical type. Finally, we propose an example of locational arbitrage that is hedged against foreign risk, since the contracts are the only oil futures to be denominated in Chinese currency.

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