Crude oil and fuel oil prices fluctuate more sharply; the Shanghai Futures Exchange adjusts hedging limits to control delivery risk.

Amid ongoing turmoil in the Middle East, energy futures such as crude oil, fuel oil, and low-sulfur fuel oil remain volatile at high levels. After the market close on March 18, the Shanghai Futures Exchange and Shanghai International Energy Exchange adjusted the hedge position limits management for these three contracts approaching their delivery months. What signals does this send?

Recently, domestic and international crude oil futures prices have experienced sharp fluctuations. On March 9, Brent crude oil futures and WTI crude oil futures peaked at $119.50/barrel and $113.41/barrel respectively, then retreated and oscillated upward. As of 21:15 on March 18, Brent crude futures rose over 4%, and WTI futures increased over 2%.

The main contracts for domestic crude oil futures showed similar trends. After reaching a high of 823.3 yuan/ton on March 10, prices fell back and then rebounded, currently oscillating at high levels. The close on March 18 was 735.40 yuan/ton, with an overnight gap higher.

Prices for related energy futures in China have also surged recently. Shanghai low-sulfur fuel oil futures hit a record high of 5,930 yuan/ton on March 16, then closed at 5,493 yuan/ton on March 18, with the overnight session opening higher and reaching new highs again. Shanghai fuel oil prices hit a new high of 5,023 yuan/ton on March 12, then closed at 4,629 yuan/ton on March 18, with the overnight session also opening higher.

“Recently, crude oil and high/low sulfur fuel oil markets have been mainly driven by US-Iran conflicts, showing a bullish trend,” said Xiao Lanlan, Deputy General Manager of Zijin Tianfeng Futures Research Center. The escalation of US-Iran tensions, including the blockade of the Strait of Hormuz, has disrupted over 20% of global crude oil supply and over 35% of maritime high-sulfur fuel oil supply. Russia’s increased fuel exports have been insufficient to offset the reduction in Middle Eastern fuel exports.

Xiao Lanlan also noted that, from a pricing perspective, on March 9, fears of prolonged shipping disruptions caused extreme panic in the global market, pushing international oil prices close to $120/barrel and further raising the costs of high/low sulfur fuel oils. As the IEA released strategic reserves and sanctions on maritime oil purchases were relaxed, the tight supply situation was temporarily eased.

Yang Jiaming, a researcher at CITIC Futures Institute’s Petrochemical Group, also believes that ongoing geopolitical tensions are pushing crude oil prices higher. Expectations of supply disruptions from Middle Eastern medium-sulfur crude, combined with soaring freight costs, have led to high and volatile crude prices, reflecting a supply-demand imbalance. Meanwhile, the tense Middle East situation, tight ship fuel supplies, and rising freight and insurance costs have jointly driven up high- and low-sulfur marine fuel prices.

“Under the influence of high geopolitical premiums and rising market sentiment, current market conditions are significantly driven by events and emotions, with high uncertainty,” Yang said.

Xiao Lanlan also warned that geopolitical fluctuations and potential conflict escalation or easing could cause sharp swings in oil and fuel oil prices. Market participants should avoid blindly chasing gains or losses. Additionally, attention should be paid to supply-side variables such as Russia’s export policies, refinery maintenance, and the progress of Middle Eastern shipping resumption, which could trigger a market reversal.

As energy futures prices such as crude oil, fuel oil, and low-sulfur fuel oil become more volatile, delivery guarantees and market risks are increasing.

After the close on March 18, the Shanghai Futures Exchange and Shanghai International Energy Exchange announced adjustments to hedge position limits for these contracts approaching their delivery months, in accordance with the “Shanghai Futures Exchange Hedging Trading Management Measures” Article 13 and the “Shanghai International Energy Exchange Trading Rules” Article 46.

According to the notice, starting from the last trading day of March 2026, for crude oil, fuel oil, and low-sulfur fuel oil contracts, non-futures company members, overseas special non-broker participants, or clients who have not obtained hedge position limits for the nearby delivery month will see their general month hedge position limits automatically reset to zero when entering the near delivery months (the second month before delivery and the first month before delivery).

“This means that market participants wishing to hold hedge positions in the near delivery months must apply for and obtain approval for the limits in advance,” Yang explained. The previous practice of automatically converting general month limits into near delivery month limits has been discontinued. This measure helps prevent excessive price swings in near delivery contracts and reduces delivery risks.

For entities focused on risk management, Yang advised planning hedge needs in advance and submitting application materials according to procedures to ensure sufficient operational capacity during critical contract phases. Otherwise, positions without approval two months before delivery will be considered unhedged, facing strict position limits, which effectively isolates speculative funds from causing liquidity and delivery risks near settlement.

Xiao Lanlan viewed this adjustment as a regulatory exercise by the exchange, which does not impact genuine hedging needs of real entities. It also helps avoid irrational positions under extreme conditions.

Summer Xia, Assistant General Manager of Nanhua Futures, said that this arrangement mainly optimizes hedge position management near delivery, without affecting normal trading, delivery, or daily hedging needs. It will not change the fundamental market operation logic.

“From a policy perspective, this move helps strictly control delivery month positions, prevent concentration of positions and mismatched delivery resources, guide market participants to plan positions and hedges reasonably in advance, curb irrational volatility, and stabilize delivery order, providing institutional support for stable market operation and risk management of real entities,” Xia concluded.

(From First Financial)