PetroYuan Futures Open - Over 10 BillIon Notional Trades In First Hour

After all the preparation, all the expectation, cheerleading and doomsaying, China's Yuan-denominated crude oil futures contract began trading tonight and appears to be off a good start with well over 10 billion yuan notional traded within the first hour.

So far it has tracked WTI futures well, trading at around a $2 premium to WTI (when translated from yuan to USD)...

Additionally, well over 23,000 contracts have traded within the first hour for a notional trading volume of over 10 billion yuan - more than $1.5 billion notional... signaling significant demand.

Offshore Yuan is moving in sync with 'Petroyuan' futures - as WTI tends to track the USD.

As we most recently noted, after numerous "false starts" over the last decade,  the “petroyuan” is now real and China will set out to challenge the “petrodollar” for dominance. Adam Levinson, managing partner and chief investment officer at hedge fund manager Graticule Asset Management Asia (GAMA), already warned last year that China launching a yuan-denominated oil futures contract will shock those investors who have not been paying attention.

This could be a death blow for an already weakening U.S. dollar, and the rise of the yuan as the dominant world currency.

But this isn’t just some slow, news day “fad” that will fizzle in a few days.

A Warning for Investors Since 2015

Back in 2015, the first of a number of strikes against the petrodollar was dealt by China. Gazprom Neft, the third-largest oil producer in Russia, decided to move away from the dollar and towards the yuan and other Asian currencies.

Iran followed suit the same year, using the yuan with a host of other foreign currencies in trade, including Iranian oil.

During the same year China also developed its Silk Road, while the yuan was beginning to establish more dominance in the European markets.

But the U.S. petrodollar still had a fighting chance in 2015 because China’s oil imports were all over the place. Back then, Nick Cunningham of OilPrice.com wrote

Despite accounting for much of the world’s growth in demand in the 21st Century, China’s oil imports have been all over the map in recent months. In April, China imported 7.4 million barrels per day, a record high and enough to make it the world’s largest oil importer. But a month later, imports plummeted to just 5.5 million barrels per day.

That problem has since gone away, signaling China’s rise to oil dominance…

The Slippery Slope to the Petroyuan Begins Here

The petrodollar is backed by Treasuries, so it can help fuel U.S. deficit spending. Take that away, and the U.S. is in trouble.

It looks like that time has come…

A death blow that began in 2015 hit again in 2017 when China became the world’s largest consumer of imported crude

Now that China is the world’s leading consumer of oil, Beijing can exert some real leverage over Saudi Arabia to pay for crude in yuan. It’s suspected that this is what’s motivating Chinese officials to make a full-fledged effort to renegotiate their trade deal.

So fast-forward to now, and the final blow to the petrodollar could happen starting today. We hinted at this possibility back in September 2017

With major oil exporters finally having a viable way to circumvent the petrodollar system, the U.S. economy could soon encounter severely troubled waters.

First of all, the dollar’s value depends massively on its use as an oil trade vehicle. When that goes away, we will likely see a strong and steady decline in the dollar’s value.

Once the oil markets are upended, the yuan has an opportunity to become the dominant world currency overall. This will further weaken the dollar.

The Petrodollar’s Downfall Could be a Lift for Gold

Amongst all the trouble ahead for the dollar, there are some good news too. The U.S. might have ditched the gold standard in the 1970’s, but with gold making a return to world headlines… we could see a resurgence.

For the first time since our nation abandoned the gold standard decades ago, physical gold is being reintroduced to the global monetary system in a major way. That alone is incredibly good news for gold owners.

A reintroduction of gold to the global economy could result in a notable rise in gold prices. It’s safe to assume exporters are more likely to choose a gold-backed financial instrument over one created out of thin air any day of the week.

Soon after, we could see more and more nations jump on the bandwagon, resulting in a substantial rise in gold prices.

Comments

NoDebt Four Star Sun, 03/25/2018 - 22:44 Permalink

Yes, let's trade "Petro-Yuan" instead of "Petro-Dollars".  Makes perfect sense since the Yuan is tightly pegged to the Dollar.

Is it possible this whole "market" could be more of a circle-jerk than it is already?  

No.  I don't think it could be.  Then again, I've been wrong before.

 

In reply to by Four Star

Lost in translation silverer Sun, 03/25/2018 - 23:44 Permalink

Americans most certainly do not get it.

Drowning in debt, living far beyond their means, waving Made in China US flags, and singing at ball games, “Gawd bless AmeriKa” as F-35 flying pianos soar over their heads.  If only they knew just how desperately hard the daily lives of most of the people on this planet, really are...

...very soon, they will.

In reply to by silverer

Pearson365 Shillinlikeavillan Mon, 03/26/2018 - 05:23 Permalink

Iran already pays for oil in Euros.

https://www.google.com/amp/s/mobile.reuters.com/article/amp/idUSKCN0VE2…

With Iran now again linking to international lenders through SWIFT, the NIOC source said it was easy for Tehran to be paid in any currency it wants, adding: "And we want euros."

This was February 2016, close to when gold was at its multi year low.  The petroyuan is just another nail in the coffin of the slow steady erosion of the dollar.

In reply to by Shillinlikeavillan

swamp Truther Sun, 03/25/2018 - 22:58 Permalink

Somebody who gets it. 

So many unread people here have NO idea what is going on, this is an oil for gold trade and China has made significent inroads to Niger, Libya, UAE, Iraq, Zimbzbwe, and is cutting secret deals with Saudi. Etc

Weimar USD coming NOW

In reply to by Truther

BigJim swamp Sun, 03/25/2018 - 23:15 Permalink

this is an oil for gold trade

 

No, it isn't. Why do people keep repeating this?

And as for the article's assertion:

For the first time since our nation abandoned the gold standard decades ago, physical gold is being reintroduced to the global monetary system in a major way.

... that's not true either.

 

I suspect we have years (if not decades) of dollar hegemony left. Which is a shame, because the US empire will do a lot of damage in that time.

In reply to by swamp

MaxThrust BigJim Mon, 03/26/2018 - 02:08 Permalink

I suspect we have years of dollar hegemony left. Mike Maloney states it very well. All currencies eventually end with zero value. The US will most probably continue to deficit spend until their currency is worthless. In the short term though the USD may strengthen if a financial crash happens and people knee-jerk back to buying the USD for safety. At this time in history all commodities are still traded in USD.

In reply to by BigJim

philipat swamp Mon, 03/26/2018 - 07:03 Permalink

It is NOT an oil for Gold trade; at least not China's Gold. The CNY oil contract trades on the Shanghai INTERNATIONAL exchange in the Shanghai Free Trade zone. If a seller of oil doesn't want the CNY received for the oil, he can buy Gold on the same exchange. But of course 1) he can already do so by freely converting any currency and buying Gold and 2) the Gold traded on the Shanghai International exchange is NOT Chinese Gold. The domestic Gold market in China is the SGE and Gold traded domestically cannot be exported.

There has been so much disinformation about this but did you really think that the Chinese are stupid enough to "back" their currency with their own Gold? If they can back the oil trade using someone else'd Gold then; more power to them...

In reply to by swamp

SimplePrinciple philipat Mon, 03/26/2018 - 07:37 Permalink

The Shanghai exchange is for physical gold.  Those selling oil for yuan might prefer gold as a store of value, and there is now a direct way to get it.  That will put pressure on the fractional reserve gold markets of the West, where the physical ounces cannot cover even 1/100 of the obligations.  Gold is likely to get repriced much higher in the free market as a result.  Manipulation will be more difficult with a physical market increasingly in the picture.

In reply to by philipat