Thursday, March 15, 2018

Bloomberg - How China is About to Shake Up the Oil Futures Market

The date for trading oil contracts in yuan is coming up on March 26th. We will keep an eye on this event to see how much impact it has. Bloomberg published this article (excerpt below) that is a pretty good summary of where things stand leading up to the opening of trading. 


"China, the world’s biggest oil buyer, is opening a domestic market to trade futures contracts. It’s been planning one for years, only to encounter delays. The Shanghai International Energy Exchange, a unit of Shanghai Futures Exchange, will be known by the acronym INE and will allow Chinese buyers to lock in oil prices and pay in local currency. Also, foreign traders will be allowed to invest -- a first for China’s commodities markets -- because the exchange is registered in Shanghai’s free trade zone. There are implications for the U.S. dollar’s well-established role as the global currency of the oil market."

My added comments: It appears that China is launching a PR campaign to try and convince the world that it is ready to open up its system so as to promote broader use for their currency. This article in RT is one example of that

We will just follow this to see what happens over time and how much impact this has on the US dollar.

Added news note: runs this article on the launch of the new contract with these concluding comments:

"While foreign investors are allowed in the petro-yuan trade, Gu said there have been relatively few accounts opened by overseas clients, indicating concerns over market liquidity and regulatory uncertainties.

"It would be difficult to challenge the dollar's dominance in oil pricing in the short term," Gu said. "In the long term, however, multi-currency pricing will become a trend in the future."

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