Yuan-Priced Crude Futures Could Arrive Before Christmas

Authored by Tsvetana Paraskova via OilPrice.com,

After years of setbacks and delays, China may be days away from launching a yuan-priced crude oil futures contract to make its currency more international and challenge the dominance of the petrodollar.

Many Chinese investors eagerly anticipate the start of yuan oil futures trading on the Shanghai International Energy Exchange, with hope it will come just in time for Christmas, when western markets will be either closed or calmer than usual.

Although local investors can’t wait to pour yuan into another commodity contract, international investors may not be as eager because it is not clear yet how much freedom China would allow in that trade. International traders may have to swallow Chinese intervention on the markets or rigid capital controls, Bloomberg reported last week.

In July, the Shanghai International Energy Exchange, INE, completed a four-step trial in crude oil futures denominated in yuan and said that it would carry preparatory works for the listing of crude oil futures, and would try to launch the contract by the end of this year.

The launch of the yuan oil futures contract will be a wake-up call for traders and investors who haven’t been paying attention to Chinese plans to create the so-called petroyuan and shift oil trade out of petrodollars, Adam Levinson, managing partner and chief investment officer at hedge fund manager Graticule Asset Management Asia (GAMA), said in October.

Although the petroyuan is not expected to immediately supplant the petrodollar, the world’s top oil importer launching a crude oil futures contract in its domestic currency is a sign that the Chinese want their yuan to play an increasingly important role in global trade, starting with the oil trade.

On the yuan front, the Chinese scored a success for their currency last year, when the International Monetary Fund (IMF) included the yuan in its Special Drawing Right (SDR) basket—an international reserve asset created by the IMF in 1969 to supplement the existing official reserves of member countries. The yuan joined the U.S. dollar, the euro, the yen, and the British pound sterling in the basket as the IMF recognized “an important milestone in the integration of the Chinese economy into the global financial system.”

After years of delays, it looks like China could meet this time its self-imposed deadline to launch the yuan oil futures by the end of this year.

“An official launch during Christmas would be appropriate. The western market would be quiet and allow the Shanghai exchange as well as Chinese investors to adjust in the early days,” Chinese trader Yuan Quwei told Bloomberg. 

 

“The Chinese oil industry wants to have a local hedging tool while financial institution investors look on Shanghai crude futures as an important product in their portfolios,” Wang Xiao, an oil analyst at Guotai Junan Futures Co in Shanghai, commented for Bloomberg.

 

“Shanghai oil will be the first Chinese product that allows foreign investors to trade directly and such involvement will surely bring more volumes,” Wang noted.

According to other analysts, the success of the yuan oil futures contract greatly depends on the Chinese regulation (and room for intervention) on the market, which could deter international investors from bringing huge volumes into the contract. Others believe that while it makes sense that the world’s key oil import market launch yuan oil futures, it would take years for the yuan to really threaten the supremacy of the “entrenched” petrodollar.

For now, investors are looking to see if this year Santa will bring them that long-mooted, long-delayed yuan crude oil futures contract.

Comments

zorba THE GREEK MGTOW_MONERO_XMR Mon, 12/18/2017 - 22:11 Permalink

Chinese people sing this song: Ching Chong, Ching Chong, Gold backed Yuan is like King Kong, Ching Chong, Ching Chong, Will bury the dollar all day long, Ching Chong, Ching  Chong, Go long gold, you won't be wrong, Ching Chong, Ching chong. Ching Chong all night, Ching Chong all day, The U.S. Dollar has seen it's day, The Chinese Yuan will lead the way. If you ain't holding physical, you ain't got squat.

In reply to by MGTOW_MONERO_XMR

LetThemEatRand Mon, 12/18/2017 - 21:44 Permalink

Thanks, Nixon.   I have to admit I've rethought my view of Nixon's watergate scandal in light of recent events, but he did fuck us by opening the trading door to China, not to mention taking us off the gold standard.

Implied Violins LetThemEatRand Mon, 12/18/2017 - 22:51 Permalink

Don't forget Kissinger's role in that fiasco, and the subsequent transfer of American industry to China and the reversal of fortunes ever since then.

It wasn't done solely for 'cheap labor' - the goal was ALWAYS to use the USA as a sledgehammer, then throw it away once (((they))) had owned every country in the world.

China is totally owned by the bankers, as is Russia. This was PLANNED, even before 1913. We are alive to witness the introduction of the new one world currency, with a shiny new BRICS face...but (((the same people))) are behind it. Just watch the boards of the FED, IMF, and BIS.

In reply to by LetThemEatRand

bidaskspread Mon, 12/18/2017 - 21:51 Permalink

Who the heck cares, plenty of Canadian crude traded in Canadian dollars. Nothing burger. You mean you don't need to buy 2 set futures to transact, holy shit it's the end of the dollar. All what if chicken little scenarios.

MaskOfZero Mon, 12/18/2017 - 22:22 Permalink

I always thought money was a coward, but now it seems as if it has become brave.The petroyuan can be used for China purchases, but will other oil purchasers or sellers choose the petroyuan?I predict the tax bill will pass, and the US economy will roar ahead well over 4% GDP to 5% GDP.China trade with the US will be forced toward reciprocity--which will put a crimp in the China economy.China already has its emperor's clothing on, and all it takes is for a little boy in the crowd to notice it is naked in debt.A big part of the reason for the petrodollar is trust in its value and fungibility relative to any other possible currency choice.I don't see that trust jumping into petroyuan's any time soon.   

Twatter Mon, 12/18/2017 - 22:23 Permalink

Right now a Bitcoin is worth 1 million Rubles and the Russians have little debt.Peterodollar it is time for a shakedown.Hopefully My Bitcoin will be worth 1 million dollars soon.

Pi Bolar Mon, 12/18/2017 - 23:00 Permalink

Yuan? That's paper printed money. I want something real I can hold in my hand. Like Bitcoin. "Look Ma, see how much Bitcoin I have in this bag" said Johnny. "We so rich"

Omega_Man Tue, 12/19/2017 - 00:06 Permalink

crush the merican dollar... it is nothing but a piece of shit and gives those mericans free pass to ruin the planet with their exceptional bullshit... the sooner the yankee dolla is toast - the better...  make mericans work again like the rest of the planet, you good for nothing bums.... with your fake ponzi money... damn moneychanging pricks. 

pitz Tue, 12/19/2017 - 00:59 Permalink

The 'petrodollar' is just conspiracy theorist crap.  Nations have always been free to transact in oil in whatever currencies they can mutually agree upon, and routinely do.  The USD is obviously a convenient currency in which to quote, but forex markets are liquid enough worldwide that settlement isn't an issue in whatever currency is agreed upon.So the net impact of this move is likely to be zero.  But the conspiracy trolls will probably downvote me and claim that there's some grand conspiracy to only transact oil in USD$.

moobra Tue, 12/19/2017 - 02:18 Permalink

The US may be corrupt but it has yet to routinely lock up/shoot/hang layers of society in regular purges. Saudi Arabia is the latest "asset reallocation" from "corruption". Maybe the US should do the same but for what it is worth, living up to a contract and rule of law matters a lot to the stability of a currency. And as for a "free market" well the Shanhgai composite is propped up by a bullet to the head.