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Page added on September 12, 2015
Launch Of Renminbi-Denominated Oil Futures Contract Imminent
Whenever one talks about the death of the petrodollar, the unspoken question lurking just beneath the surface is this: is the rise of the petroyuan just around the corner?
This year, we’ve gotten quite a bit of evidence to suggest that the answer to that question may indeed be a resounding “yes.” In May for instance, Russia surpassed Saudi Arabia as the largest oil supplier to China and what’s especially notable there is that beginning in 2015, Gazprom began settling all of its crude sales to China in yuan meaning that, at least partly, the petrodollar was supplanted just as soon as its death became inevitable.
Now, just as China has moved to play a greater role in determining the price of gold by participating in the LBMA auction and by establishing a yuan-denominated fix, it’s moving quickly to create a yuan-denominated oil futures contract. Here’s Reuters:
China’s push to establish a crude derivatives contract has been met with early scepticism, but oil executives say the country’s growing economic influence means a third global crude benchmark is inevitable.
A derivatives contract would give the Shanghai International Energy Exchange, known as INE, a slice of an oil futures market worth trillions of dollars, offering a rival to London’s Brent and U.S. West Texas Intermediate (WTI).
And while others have tried and failed, China brings its might as the world’s biggest oil buyer, a strong dose of political will and the alignment of its financial and banking system for a yuan-denominated contract.
“The energy industry is still manned, literally, by people from the West. But the world moves on, and there’s a change of guard,” said a senior market executive, speaking on the sidelines of a major industry gathering in Singapore this week, at which delegates spoke on condition of anonymity.
“China has become the world’s biggest oil trader, and that means that an oil price will be set there, like it or not.”
To be sure, some people do not and China’s recent adventures in propping up both the stock market and the yuan have, in the minds of many, served to reinforce the notion that when things aren’t going Beijing’s way, it will simply force the issue. Some fear the same thing could well happen with RMB crude futures:
“The market doesn’t like the idea of a benchmark dominated by the world’s biggest consumer, where the regulator is suspected of having the goal of lowering prices,” said an executive with a non-Chinese exchange in Asia, speaking at the same event.
But skeptics may have to choose between the lesser of two (perceived) evils because as we saw last month in Singapore, pricing off Dubai leaves everyone subject to perplexing anomalies like what happens when mysterious trading between two Chinese SOEs ends up throwing the market into backwardation at a time when common sense dictates that everyone should be doing the contango tango.
The current benchmark for pricing oil in Asia in the absence of a derivatives contract is the Dubai crude assessment, run by Platts, part of McGraw Hill Financial, where trading in a specified time-frame is used to assess a daily price.
Yet traders have been concerned at heavy trading by China’s state-owned Chinaoil and Unipec, which pushed up Middle East grades even as other grades were being pressued lower, and left other companies struggling to take part.
Essentially, it looks like Chinaoil and Unipec may be gaming the Platts Dubai MoC (although no one knows exactly why) and that has implications for all kinds of people including (obviously) Saudi Arabia, Iran, and Iraq, as well as refiners and traders like Mercuria and Glencore. The hope is that a RMB contract will help solve the “problem.”
In any event, it makes no more sense to exclude the world’s largest oil buyer from crude benchmarking than it does to keep the world’s largest producer and consumer of gold out of the gold price-setting process, which is why, in short order, China will be heavily involved in both. And as for widespread adoption of the new contract, that, like the internationalization of the yuan and the demise of the petrodollar, is only a matter of time:
“One-by-one, the oil-majors will start to participate, then others will follow,” said an executive with a Western oil major. “While it might take some time to establish itself due to choppy markets and regulatory hurdles as well as the fact that it would introduce a foreign exchange element to crude futures, it is overdue for a Chinese contract to established.”
20 Comments on "Launch Of Renminbi-Denominated Oil Futures Contract Imminent"
steve on Sat, 12th Sep 2015 9:04 am
Where do they find these articles! They are always so shortsided and lacking of the facts….The Chinese economy is in a lot of hurt in every way… please refer to the following article from Zero hedge on china…
http://www.zerohedge.com/news/2015-09-12/miracle-cataclysm-why-commodity-bust-will-last-years
Makati1 on Sat, 12th Sep 2015 9:24 am
steve, ZH is not a China authority. It is a collection of financial and other news as chosen by the owner of the site and support his beliefs and pay his salary, not always reality. You seem to forget that the us is the most indebted country in history, with basically ZERO reserves or economy other than war exports to pay the bills. Total us debt is between $60 trillion and $400 trillion, depending on what obligations you count. The $18 trillion advertised is a lie and gross understatement.
Not saying that China is not having problems. but they have a nice $4 trillion nest egg to cushion the bounces, a real manufacturing economy and huge exports. They can afford to lower their growth to 4-5%. It will still be 4-5% higher than the us’.
“China mulling over 1 trillion yuan in stimulus over 3 years: CICC” (That comes to about $1B per month, 1/60th of the US stmulus over the last 4 years.)
China is doing nothing that the US has not been doing since 2008 in larger amounts. Including the $700B to prop up the TBTF banks in 2007.
(700 Billion USDs = ~4.5 Trillion Yuan)
Makati1 on Sat, 12th Sep 2015 9:27 am
Launch it now! The Empire needs taken down until it only consumes it’s 4.5% of the world’s resources, not 25%++.
joe on Sat, 12th Sep 2015 9:49 am
The Anglo – American empire won’t readily submit to Chinese butting in on their turf. If the US partner’s up with China it’s could benefit. But the BRITISH POUND would face it’s demise and the City of London would be abandoned and only telecoms and gas companies left to fill the empty office spaces left by global banks who might maintain jobs there to save face for UK INC but, like HSBC BANK not really have to stay there at all.
The US is weakening and as with is communism hysteria and recent terrorism hysteria it’s losing perspective about its true position and power. The USA can extract meaningful human rights reform as a trade for partnering up with China, the more they improve life for its people, the more they can share the world’s wealth. The more paranoia it gives in to, then the more it loses legitimacy and each compromise and drone strike and delivered bomb to Egypt, Israel, and Saudi Arabia makes the US just like them until it’s not important who comes out on top if YOUR not in the 1%.
Does the US owe Israel a debt forever? NGOs are expert at marketing the idea that Empire exists to put an end to human suffering, science magazines tell us humanity has never been more peaceful and every human has had his life extended by science and capitalist free market economics. China has a choice to make but it’s not as if they can choose to ride off into the Sunset and expect the kind of century the US enjoyed. The only uninhabited continent at the turn of this century to exploit is under a mile of ice.
CHINA will have to learn to share, so will America. It used to be ‘Working class people, unite!’. The future will be ‘immensely wealthy billionaires, unite!’.
Davy on Sat, 12th Sep 2015 10:06 am
Yeap, Steve, the article says volumes why the Brics are flat on their backs and heading for economic collapse not the stardom that many here were crowing just a few months ago . They are little more than commodity driven countries or export driven economies needing those economies and markets. The brics had the short period of the commodity super cycle to have inflated egos. It is downhill from here on out for the Brics and especially the brics in Asia. At least Russia is a hybrid of developed and developing economy with energy and food production. Brazil has food. The Brics of Asia are overpopulated with destroyed ecosystems. They are toast and will take the world down with them. How about that Chinese legacy!
BobInget on Sat, 12th Sep 2015 10:40 am
India, one of China’s most important customers.
UAE and Saudi Arabia the biggest.
If Saudi Arabia’s thirst for weapons is to be satisfied, USD’s not yuan are needed.
Every nation wants US made drones.
Boeing aircraft are priced in dollars.
https://en.wikipedia.org/wiki/List_of_the_largest_trading_partners_of_India
.
India’s crude imports grew 27% in July year over year, surpassing Japan.
India’s 2015 GDP growth rate over 5%.
India is now the world’s third largest economy. Third largest oil importer.
India’s population will exceed China’s in five years.
Iran’s gas pipeline can supply most of India’s
needs for decades.
As you can see, India runs deficit trade gaps
because of oil imports. Only the US and Hong Kong is there trade surplus.
I can’t see India forsaking USD’s anytime soon. More then likely India will buy oil where it can with a basket of currencies.
The fact that an inflated USD has made ‘cheap oil’ less so must play an important
role in devaluing the yuan and subsequent
moves to price oil in yuan.
On the ground, China, over the past fifteen years corralled most available oil exports
with the exception of UAE and KSA.
Good luck there.
PrestonSturges on Sat, 12th Sep 2015 11:38 am
Bwahahahahahahaha … (gasps for air)… hahahahahahahah
Makati1 on Sat, 12th Sep 2015 9:05 pm
And ,ore importantly to Americans:
http://www.washingtonsblog.com/2015/09/americans-have-lost-our-rights.html
“The Land of the Free and the Home of the Brave The Land of the Fleeced and the Home of the Slave
This post explains the liberties guaranteed in the Bill of Rights – the first 10 amendments to the United States Constitution – and provides a scorecard on the extent of the loss of each right.”
But not of interest to the ‘super patriotic flag waving’ Sheeple as they slide into the 3rd world under a banana republic dictatorship. Ouch!
Boat on Sat, 12th Sep 2015 9:15 pm
Mak?
Why are you not beating a path to China or Russia then?. They might or might not let you log in here to tell us of your glorious life style. You can go to big military parades. Wow they nice.
Davy on Sat, 12th Sep 2015 9:32 pm
Renminbi-denominated trash
A Major Bank Just Made Global Financial “Meltdown” Its Base Case: “The Worst The World Has Ever Seen”
http://www.zerohedge.com/news/2015-09-12/major-bank-just-made-global-financial-meltdown-its-base-case-worst-world-has-ever-se
When it comes to the epic bubble in China’s economy, it really boils down to one – or rather two – things: a vast debt build up (by now everybody should be familiar with McKinsey’s chart showing China’s consolidated debt buildup) leading to a just as vast build up of excess capacity, also known as capital stock accumulation. And/or vice versa.
It is how China resolves this pernicious, and self-reinforcing feedback loop, that is a far greater threat to the global economy than even what happens to China’s bad debt (China NPLs are currently realistically at a 10-20% level of total financial assets) or whether China successfully devalues its currency without experiencing runaway capital flight and a currency crisis.
The stunning punchline:
“Of all the possible risk scenarios the meltdown scenario is, realistically speaking, the most likely to occur. It is actually a more realistic outcome than the capital stock adjustment scenario. The point at which the capital stock adjustment is expected to hit bottom is at a much lower point than in the previously discussed capital stock adjustment scenario (see Chart 8). As shown in the bottom right portion of this chart, the actual economic growth rate will continue to register considerably negative performance. If China’s economy, the second largest in the world, twice the size of Japan’s, were to lapse into a meltdown situation such as this one, the effect would more than likely send the world economy into a tailspin. Its impact could be the worst the world has ever seen.”
Makati1 on Sat, 12th Sep 2015 10:16 pm
Boat, I have a better place than any of those. I live in the Philippines now and have for over seven years. Best decision in my 71 years. You can keep the Empire and the coming chaos and destruction there. Here, the government does not reach into your bedroom, mind and wallet 24/7/365. The news is still news, not all propaganda. And, the people rise up in huge numbers to get changes made. No so in the Us anymore, if ever.
My greatest fear is that the stupid Ps elite will let the Empire’s military back into the country again. They were smart and kicked them out decades ago. You should see the American Embassy here. Re-built like a fort over the last five years (and billions of dollars) and covers several city blocks, right on the edge of Manila Bay. Perfect target for the Chinese…lol.
Rodster on Sat, 12th Sep 2015 10:36 pm
Renminbi-denominated trash
A Major Bank Just Made Global Financial “Meltdown” Its Base Case: “The Worst The World Has Ever Seen”
I was just about to post the link to that article.
BC on Sat, 12th Sep 2015 11:24 pm
I have maintained since my last trip to China-Asia that China was a four-letter word: “Sell”.
The “meltdown” has always been the realistic “base-case scenario” in my mind.
And India is 40-45 to 80+ years too late to an industrial or fossil fuel-dependent, complex, high-tech, high-entropy post-industrial economy and society; it ain’t gonna happen.
Truth Has A Liveral Bias on Sat, 12th Sep 2015 11:25 pm
Zero hedge is crap. Ignore it entirely.
It’s not in China’s interest to denominate oil in its currency. It will cause the value of its currency to rise. China wants its currency depreciated so its exports are cheaper to foreign consumers. In case anybody missed the last few years, many nations are attempting to devalue their currency to stimulate exports.
Davy on Sun, 13th Sep 2015 5:59 am
It amazes me how the anti-Americans bash Zero Hedge because ZH is so anti-American. It has multiple articles that are US critical and many very good ones. The problems with the anti-Americans is many articles also touch on grave problems in the rest of the world especially with the Brics. That is something the anti-Americans can’t stand. The anti-Americans want the US to be in the worst possible light without clouding from problems elsewhere.
American critical is good. We must confront the worst problems from the US. Anti-Americanism is nothing more than personal agendas of hate and resentment that is no different than any other global propaganda or hate. I might add anti-Americanism compares to the propaganda machine the US establishment has so effectively employed. Anti-Americans are as bad as those they hate employing the same tools and attitudes. That folks is pure hypocrisy and points to the lowest of human nature. I laugh daily when I see this.
Boat on Sun, 13th Sep 2015 10:07 am
Davy,
Zero just produces inflammatory rhetoric and mostly one sided stories. I don’t read it for that reason. One can read basic statics and figure where the problems are. I come here for the inflammatory rhetoric. Lol
Anti American, anti gender, anti race etc are just immature minds looking for something to support a biased view. A more mature view believing all 7 billion of us are equal and want to problem solve is a smarter view.Education for the masses is the best way to walk that long troubled road.
ghung on Sun, 13th Sep 2015 10:29 am
Boat says; “A more mature view believing all 7 billion of us are equal and want to problem solve is a smarter view.”
Seeing as how I can point to a whole lot of folks who wait for others to solve their problems, indeed, expect that to happen, I’m not sure how “mature” that assessment is. Seems equally biased. Further, they can’t even admit that many of these so-called “problems” are actually predicaments with no acceptable solutions, requiring instead that people modify their behaviours. Most won’t, some can’t, and few of us will look for their own solutions that don’t involve hopeless top-down complexity with a slew of intermediaries involved in not actually solving anything. Welcome to your entitled industrial age society.
GregT on Sun, 13th Sep 2015 10:39 am
“A more mature view believing all 7 billion of us are equal and want to problem solve is a smarter view.”
That’s hardly a mature view Boat, more like a delusional fantasy.
Davy on Sun, 13th Sep 2015 10:43 am
Obviously Boat you are unable to read anything that does not fit your world view. There are other asswipes on this board that are in the same boat. Extremist flag waivers or anti-Americans are mostly this way. There are others on our board who put the rubber boots on and wade through the shit to find the truth.
Boat on Sun, 13th Sep 2015 11:01 am
Davy,
I use this site and MSM like from google as a tool to peak my interest on topics. Then I go look for the facts. I don’t watch opinion pieces with one sided views. This is why I am not a Dem or Rep. I am not discussed with the process, it is what it is. I suppose it is impossible not to be influenced by I try to remain objective.