China Regulators Complete Final 'Drill' In Preparation For Petro-Yuan Futures Trading

Amid all the chatter of Venezuela and Russia potentially creating oil-backed cryptocurrencies, the "huge news" of China's launch of the Petro-Yuan has fallen off the front page... until now.

This week saw the Shanghai Futures Exchange complete its fifth yuan-back oil futures contract trading drill successfully...

As Bloomberg reports, 149 members of Shanghai International Energy Exchange traded 647,930 lots in the drill with total value of 268.2b yuan, according to a statement from the exchange, which added that the system basically met the listing requirements of crude futures after the drill.

While this was a success, it's not all plain-saling...

As Bloomberg notes, as the world’s largest energy consumer and an increasing source of investment capital for oil-producing nations, China has an interest in using its own currency rather than that of a geopolitical competitor.

One hurdle for setting up a rival to Brent or West Texas Intermediate: Overseas oil producers and traders would need to swallow China’s capital controls and penchant for occasional market interventions.

Similar hurdles have kept foreign investors as bit players in China’s giant mainland stock and bond markets, and the share of payments in Yuan in the Global SWIFT system has fallen...

"This contract has the potential to greatly help China’s push for yuan internationalization," said Yao Wei, chief China economist at Societe Generale SA in Paris.

 

"But its success will hinge critically on the degree of freedom allowed for the capital flows related to the contract," she said.

 

"It is not unreasonable to envision a world in which the overwhelming share of commodity contracts, especially for oil, are no longer denominated just in dollars," said Eswar Prasad, a former China division chief at the IMF.

 

But "the yuan’s role in global finance will ultimately be determined by the degree of commitment of Xi Jinping’s government to economic and financial market reforms."

But, as we detailed previously, the writing is on the wall for dollar hegemony, and we suspect teh decline in global yuan trade volumes is another reason for China to push ahead sooner.

As Russian President Vladimir Putin said almost two months ago during the BRICs summit in Xiamen,

“Russia shares the BRICS countries’ concerns over the unfairness of the global financial and economic architecture, which does not give due regard to the growing weight of the emerging economies. We are ready to work together with our partners to promote international financial regulation reforms and to overcome the excessive domination of the limited number of reserve currencies.”

As Pepe Escobar recently noted, 'to overcome the excessive domination of the limited number of reserve currencies' is the politest way of stating what the BRICS have been discussing for years now; how to bypass the US dollar, as well as the petrodollar.

Beijing is ready to step up the game. Soon China will launch a crude oil futures contract priced in yuan. This means that Russia – as well as Iran, the other key node of Eurasia integration – may bypass US sanctions by trading energy in their own currencies, or in yuan. Inbuilt in the move is a true Chinese win-win; the yuan - according to some - will be fully convertible into gold on both the Shanghai and Hong Kong exchanges.

The new triad of oil, yuan and gold is actually a win-win-win. No problem at all if energy providers prefer to be paid in physical gold instead of yuan. The key message is the US dollar being bypassed.

China's plans for oil futures trading go back more than two decades, with the government introducing a domestic crude contract in 1993 and stopping a year later amid an overhaul of its energy industry. But in 2013, we first hinted at the birth of the petroyuan was looming...

In doing so China is effectively lobbing the first shot across the bow of the Petrodollar system, and more importantly, the key support of the USD in the international arena... setting the scene for the petroyuan.

*  *  *

And now it just became one step closer to reality, as Bloomberg reports, China’s government State Council has officially approved the listing of a crude futures contract in Shanghai, according to people familiar with the matter.

While the date of launch will be determined by China Securities Regulatory Commission and Shanghai Futures Exchange, it would appear we are within weeks of it becoming a reality as China prepares to roll out a yuan-denominated oil contract...

"Approval of the trading rules by the securities regulator marks the clearance of a major hurdle toward launch of the contract," Li Zhoulei, an analyst with Everbright Futures, said by phone.

 

"The latest rules raised entry threshold for investors from the draft rules, which shows the government wants to avoid volatility when it first starts trading."

Which, according to Adam Levinson, of hedge fund manager Graticule Asset Management Asia, will be a “wake up call” for investors who haven’t paid attention to the plans.

Comments

zorba THE GREEK Brazen Heist Wed, 12/13/2017 - 19:49 Permalink

The Saudis have an agreement with the USA to trade oil in dollars only. That agreement among other things gives The Saudis the protection of The US government against any and all attacks by other nations. I don't think The Saudis in their present unstable state, are ready to cancel that pact. They may opt to lose some oil trade with China, at least for now.

In reply to by Brazen Heist

coast1 Wed, 12/13/2017 - 19:43 Permalink

i only made enough on my investments to buy a nice dinner this year..lost money from holding to cash too...i told all of you the day I buy bitcoin it will go down...you didnt believe me.  I bought on my birthday a couple days ago...then I decided to put some into ethereum or litecon...I picked litecoin...ethereum is up and litecoin is down...I kid you not, do exactly the opposite of what I do and you will be rich..

Anteater RawPawg Wed, 12/13/2017 - 20:00 Permalink

Oh for God sake just stop!China-Iran oil trade is 1/20th of the global oil trade.And once Iran gets a taste of yuan-traded Chinese crap,the Ayatollahs will shut that tit-for-tat trade down, andgo back to trading in rubles, or sheckels, or whateverthey need as a trade vehicle, that isn't being illegally-sanctioned by the Wall Street and WADC-NOVA Ubers.

In reply to by RawPawg

Zen Xenu Wed, 12/13/2017 - 20:00 Permalink

Waiting to see what happens when this goes live, rather than just a drill.Too many Mericans seem to think the Petrodollar global dominance is their God given right.And a heckuva lotta Mericans are likely in for a rude shock next year.

rlouis Wed, 12/13/2017 - 20:05 Permalink

So... China can buy oil in yuan but the sellers are/maybe subject to capital controls?  Seems like there are still some bugs to work out - BIG bugs.   Capital controls, lol!

loveyajimbo Wed, 12/13/2017 - 20:44 Permalink

No mention that this contract is oil/yuan... and GOLD???  Yes, convertible..... MIGHT be a big thing...Dollar is toast... and soon... Bitcoin is a massive bubble, will be crashed when the deep state wants to crash it...GOLD, Bitchez!!!

JibjeResearch Wed, 12/13/2017 - 21:53 Permalink

Am I the only one happy about PetroYuan?  Why would I be?Because I have stocks and cryptos, the price will go up when the USD returns home.Gold?  May be!  If people can hold their physical gold, then the price will go up too. Why would it be bad for the whole nation? It's only bad if you are on fixed income, get you shit out of there... if you value your living standard. This is the time of everything volitile upward...

Chupacabra-322 Wed, 12/13/2017 - 22:24 Permalink

Here's a good analysis revealing the real catalyst for Trump Armageddon: 

"The true motive behind the wars in the Middle East is to maintain the US dollar as Reserve Currency and the Petrodollar as the unit of value for a barrel of oil. thus financing the US economy and its Military enforcement machine.

Russia and China have been dumping their US Treasury Bonds slowly and now trade between themselves in Gold, Yuan and rubles.

They have formed a new Financial system with the AIIB (Asian investment and Infrastructure Bank). They have formed a new Bank Clearing System, separate from SWIFT. They have their own credit card systems.

China is building the NEW SILK ROADS and sea arteries to connect the countries of ASIA to Europe. Trade along these routes will be in local currencies, bypassing the dollar.

The Silk Roads by-pass the US Navy’s control of the sea route choke points and make their carrier fleets largely redundant as enforcement tools..

For the Washington war machine, Syria is but a stop along the road to Iran, then up into Central Asia to cut and control the Silk Road and impose the US dollar toll charge.

The New Silk Roads spell the end of the US dollar as the dominant currency and the end of the US military and Financial hegemon.

Thus Syria is a major pivot point in World History and will be a war to the end. Empires die slowly and usually decay from within, but this may not be the case with the neocon psychopaths reluctant to concede power.

There are other US allies with interests in subduing Syria; Saudi and Qatar to build their gas pipeline to the Meditterean and onto the European Market, this undermines Russian near monopoly of supply and will undermine their already fragile economy.

Turkey with its grab for the corridor to the oilfields of Mosul and subjugation of its rebellious Kurds.

Israel and its Oded Yinon plan to break-up Syria and grab land, also to cut the Shia Crescent connecting Iran to Hezbollah in Lebanon.

European countries who are reliant on Russian gas energy supplies and wish to have another supply source from the Gulf States.

So there are many countries ready to feed on the carcass of Syria, if it is defeated."