- Yuan-denominated contract begins trading in Shanghai Monday
- Domestic futures start 25 years after idea was first mooted
It’s taken a quarter of a century, but China finally has its own oil futures. At 9 a.m. local time on Monday, crude contracts began trading on the Shanghai International Energy Exchange. Futures for September settlement opened at 440 yuan a barrel, up from a reference price of 416 yuan. The world’s biggest oil buyer is offering yuan-denominated futures that foreigners can buy and sell — a first in Chinese commodities. Among the most intriguing questions is whether the traditional benchmarks of Brent crude in London and West Texas Intermediate in New York will face a serious challenger. Here are some of the other key questions.
1. Why is this important for China?
Futures trading would wrest some control over pricing from the main international benchmarks, which are based on dollars. Denominating oil contracts in yuan would promote the use of China’s currency in global trade, one of the country’s key long-term goals. And China would benefit from having a benchmark that reflects the grades of oil that are mostly consumed by local refineries and differ from those underpinning Western contracts.
2. Why now?
The push for oil futures gained impetus in 2017 when China surpassed the U.S. as the world’s biggest crude importer. The Asian nation’s purchases reached a record highin January.
Well since there has been surely a push from the people who control the US of getting a monopoly of oil and the trade being done with it, I think It’s important we follow what Russia and China could do next.
The new Petro Yuan will allow both of the countries to dump the dollar and use national currencies instead.
Makes me wonder what they will do with all that power, It kind of reminds me of the “rings of power” from TLoTR.
China is the world’s biggest crude consumer and buys most of its oil from Russia. However, most settlements are still in US dollars. The launch of the petro-yuan now allows Moscow and Beijing to use national currencies instead.
China and Russia are actively reducing dependence on the dollar in bilateral trade. In October 2017, Beijing launched a payment system for transactions in yuan and Russian rubles. This means that settlements for Russian oil deliveries to China, which have reached 60 million tons per year, can be done without using the dollar.
After Monday’s launch of the yuan-backed oil futures in Shanghai, there have been negotiation between Russia and China on mutual promotion of oil futures in national currencies, RIA Novosti reported. In 2016, the St. Petersburg exchange in Russia launched Urals oil futures in the Russian ruble, and support from China could prop up Russian crude futures.