China acts to fend off high oil prices

CHINA, the world's second biggest oil consumer after the US, began trading fuel oil futures for the first time in a decade today in a bid to shield firms from sky-high prices.

The move allows Beijing to test the waters before approving crude oil derivatives - vital to help hedge risks as oil prices hover near a record $50 a barrel.

It is also part of wider financial reforms aimed at resuscitating China's derivatives market, which has been in limbo for the past 10 years.

China is Asia's largest buyer of fuel oil - a heavy, dirty hydrocarbon used to operate ships, power generators and steel and porcelain mills. In the first seven months of the year, imports of fuel oil leapt 40% as China's economy boomed.

Dealers manned scores of telephones, screens and gleaming new computers as trading got under way. Unlike the New York Mercantile Exchange and London's International Petroleum Exchange, there is no open outcry. Trading volumes surpassed expectations, driving prices about 4% higher.

Theoretically, any foreign player registered in China, such as BP and ExxonMobil, would be eligible for a licence to trade.

Trading kicked off as world oil prices resumed their climb, halting a three-day losing streak. US light crude rose 10 cents to $45.31 a barrel, still well down on the record $49.40 struck last week.

Prices have been falling since oil failed to hit the key $50 mark and Iraq returned oil exports to near-normal levels. London's Brent yesterday closed 71 cents lower at $42.32.