Contract to reflect country's growing importance in setting global price of oil

China may launch a global crude oil futures contract as early as October to compete with the existing London Brent and the United States' West Texas Intermediate benchmarks, three sources said, as it pushes ahead with reforms to open up its oil markets.

The long-awaited crude contract would better reflect China's growing importance in setting crude prices, as well as boost the use of the yuan in which it will be traded, although volatile global trading conditions and China's recent interference in stock markets have raised some concerns.

The Shanghai International Energy Exchange, also known as INE, circulated a draft of the futures contract to market participants last month, saying the launch could happen as early as October, the sources who saw the draft told Reuters.

China, the world's second-biggest oil consumer, has already begun to loosen its grip on the physical oil sector this year by granting quotas for imported crude to privately owned refiners for the first time, surprising market participants with the speed of reform.

"The development of a futures market is closely linked to the physical market," INE said in a statement issued to Reuters in response to questions about the new contract.

"The more physical players participate, the better the liquidity of the futures market will be."

The launch of Shanghai crude futures won State approval last year and would be the first Chinese contract that allows direct participation by international investors.

A Shanghai-based contract will compete in the crude futures market, which is worth of trillions of dollars and is dominated by two contracts, London's Brent LCOc1, seen as the global benchmark, and WTI CLc1, the key US price.

Oil traders said Chinese crude futures would eventually compete against Brent, which is priced off small and declining oil fields in the British North Sea, and can be affected by factors with no relationship to Asia.

INE said that it aimed to have overseas investors, oil companies, and financial institutions participating in its crude futures trading.