By Chen Aizhu and Shu Zhang
SINGAPORE, July 14 (Reuters) - BP BP.L delivered 3 million barrels of Iraqi oil to the Shanghai International Energy Exchange (INE) this month, becoming the first major global trader to make a physical delivery since China launched the futures market in 2018, industry sources said on Tuesday.
There have been a flurry of deliveries since May as strong buying by Chinese financial investors drove INE futures ISCc1 to a premium over Brent futures LCOc1, making it profitable for traders to deliver into the contract.
The two markets have largely converged since late June, and the contract for the INE front month, August, is now trading below the Brent front month, September.
Two sources with knowledge of the matter said BP delivered 3 million barrels of Iraqi oil Basra Light into an INE storage facility in east China's Shandong province earlier this month.
BP is set to deliver another one million barrels of Abu Dhabi Upper Zakum crude under an August contract, said the two sources.
INE and BP declined to comment.
Swiss commodities trader Mercuria will be the next international trader delivering into the yuan-denominated contract, said two separate sources with knowledge of the matter.
Mercuria is set to send one million barrels of Upper Zakum crude for August and another one million barrels for September, said one of the sources.
Mercuria did not immediately reply email seeking comment.
The INE crude contract is one of a handful Chinese futures products open for direct foreign participation, as the world's top commodities consumer seeks greater influence over pricing.
Other futures markets open to foreign participation offer contracts for iron ore, rubber and low sulphur fuel oil.
To cope with surging demand for physical deliveries, INE has more than doubled its storage tank capacity to nearly 60 million barrels since April.
China's June crude oil imports jumped by a third from a year earlier, setting a second straight monthly record, as cheap cargoes bought during April's oil price crash arrived at Chinese ports.
Crude delivered into INE storage are also counted as imports.
Brent vs Shanghai INE crude oil priceshttps://tmsnrt.rs/303tTVc
(Reporting by Chen Aizhu and Shu Zhang; Editing by Simon Cameron-Moore)
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