Shanghai Crude Futures Sink After Heavy Overnight Selling
BEIJING, March 28 (Reuters) - Shanghai crude oil futures were sharply lower on Wednesday, the third day of trading since their launch, after heavy institutional selling overnight as investors followed cues from the dominant international U.S. and European markets.
The big volumes done in the late evening in China underscore the complexity of trading the new contract when London's Brent and WTI in the United States are in full swing, with Shanghai's relatively low liquidity exaggerating the price swings.
In the first two hours of the night session, which started at 9 p.m. on Tuesday evening, prices sank 4.2 percent to 408.6 yuan ($65.09) per barrel.
Some 34,360 lots, equal to 17.1 million barrels of crude, changed hands in that time. That's more than half of the turnover for the day so far, including the overnight session and the morning one from 9 a.m. to 11:30 a.m.
It wasn't immediately clear what caused the hefty drop, although some traders said it was due to a stronger yuan. A stronger yuan would make investment for holders of other currencies more expensive.
Traders also said the relatively low open interest caused big gyrations.
"Given the limited liquidity and also the perception that the (Chinese) national oil companies are on the sell side, short-sellers were emboldened," said a Beijing-based trader with a western trading house.
Selling continued through the morning session, with prices ending the second session down 4.24 percent at 408.4 yuan.
"The stronger Chinese currency is the key driver that prompted selling by mostly retail investors ... the crude contract also took its cue from weaker prices of other Chinese commodities," said Zhang Huiyao, deputy head of crude with Huatai Futures.
Turnover for the first two sessions was 60,008 lots, equal to 30 million barrels of crude. In the first two days of trading, volume was around 40,000 lots.
($1 = 6.2777 Chinese yuan) (Reporting by Josephine Mason and Chen Aizhu; Editing by Richard Pullin and Tom Hogue)
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