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China’s Oil Futures Are Gaining Momentum

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China’s new oil futures contract is gaining some momentum as a fixture on the global oil market, although hurdles remain before it can become a key benchmark for Asia.

China launched its yuan-denominated oil benchmark in March to much fanfare, after years of planning and delays. The logic of starting up an oil futures contract in China is obvious. China is the largest crude oil importer in the world, and its growing appetite for crude has increased the urgency to establish a contract based on local supply and demand conditions. Importing such heavy volumes at dollar-denominated prices exposes Chinese refiners and consumers to currency risk. A yuan contract mitigates some of that risk.

Beyond those concerns, the yuan contract also augments the global status of the Chinese currency. China is the world’s second largest economy and shifting more global trade into yuan advances Chinese influence.

However, the new contract on the Shanghai International Exchange still has to overcome some hurdles before it can be taken seriously as a premier benchmark in the global oil market. Just because the contract was launched does not mean it will become dominant, or even relevant. Previous contracts have failed to garner sufficient liquidity and ultimately have been discontinued or have wallowed in irrelevance.

The Dubai Mercantile Exchange’s Oman futures contract has been somewhat reflective of conditions in the Asian market, incorporating medium and heavy sour blends. But “its daily traded volume and open interest (number of contracts outstanding) have remained at low levels since its inception in 2007, indicating it is not actively used among market participants,” the EIA wrote last week.

As Reuters noted in early April, there are several ingredients for success. First, the contract must serve a need for hedging. Second, it has to attract enough traders in order to build liquidity. Finally, restrictions on trading, speculation, and capital controls must not be too onerous.

Because China is already the world’s largest oil importer, the Shanghai contract can obviously meet the need for hedging. It also has a sizable pool of refiners and traders, which should allow the contract to build liquidity. An added advantage is that China imports medium and heavy sour crudes, while Brent and WTI generally reflect lighter and sweeter varieties. The need for some differentiation is there.

Reuters notes the biggest uncertainty is over intervention in the market from the Chinese government, which could deter investors. But the desire by the Chinese government itself to successfully build the Shanghai benchmark might be a strong enough incentive to allow trading to proceed largely uninhibited.

As such, the prospects look good for the Shanghai oil contract and trading volumes have picked up.

For China, the trading of oil contracts in yuan reduces currency risk for Chinese consumers, and thus, the Chinese economy. Yet, with the rest of the world buying and selling oil in U.S. dollars, for oil traders, a contract denominated in yuan creates new currency risk. That could be a big deterrent and obstacle for the growth of the Shanghai contract, an obstacle that other futures contracts did not have to overcome. For instance, the USD/CNY exchange rate has appreciated 8 percent over the past year, the EIA points out.

However, the global oil trade is gradually shifting east since that is where demand is rising the fastest. In 2017, the EIA says that Asia and Oceana accounted for 35 percent of global demand for oil and other liquid fuels, up from just 30 percent in 2008. That portion will continue to expand with China and India accounting for an outsized portion of demand growth going forward.

That puts additional weight on the importance of a benchmark that reflects supply and demand conditions in Asia. Over the longer-term, the potential peak and decline of oil demand in the OECD West makes Asia even more important as a hub for the oil market.

Already, the Shanghai contract has seen more trading volume for September 2018 delivery than the Oman contract. But volumes are still a tiny fraction compared to WTI and Brent. It could be a while before the Shanghai contract becomes a truly global benchmark. But it is on its way to becoming an important regional benchmark at least, reflecting medium and heavy sour conditions in Asia.

(Click to enlarge)

By Nick Cunningham of Oilprice.com



29 Comments on "China’s Oil Futures Are Gaining Momentum"

  1. JuanP on Sun, 29th Apr 2018 8:38 pm 

    A regional benchmark is all it needs to be to benefit China.

  2. makati1 on Mon, 30th Apr 2018 5:17 pm 

    Step by step, the Chinese are moving forward with their plans while the Us is slipping faster and faster down the slippery slope to the 3rd world. Even the Us dominated IMF is talking positive about China’s future and downplaying the Us.

    “Days after attending shadowy meetings with top globalists and a member of the Chinese Communist Party Central Committee, International Monetary Fund boss Christine Lagarde (shown) shocked the world by saying IMF headquarters could someday move from Washington, D.C., to Beijing.” (2014)

    https://www.thenewamerican.com/economy/item/18455-imf-may-move-from-dc-to-beijing-chief-says

    “July 25 – The headquarters of the International Monetary Fund (IMF) could move to Beijing in a decade…” (2017)

    https://www.yicaiglobal.com/news/imf-headquarters-may-move-beijing-decade-says-its-director-lagarde

    The big money is moving East to growing Asia.

  3. MASTERMIND on Mon, 30th Apr 2018 5:19 pm 

    Madkat

    A witty saying proves nothing..

    -Voltaire

  4. makati1 on Mon, 30th Apr 2018 5:31 pm 

    And you use one to prove your point MM? WOW! Real intelligent! Keep doing that MM, it makes me laugh. Genius? PhD? Hahahahahahahaha!

  5. Davy on Mon, 30th Apr 2018 5:35 pm 

    Geeze, 3rd world, your reference was from 2014. You are trying awfully hard to be stupid.

  6. MASTERMIND on Mon, 30th Apr 2018 5:47 pm 

    Davy

    Madkat will post links from anywhere on the web. Just like Clogg they both have no standards. If they would have gone to college they would have learned what a reliable source is. And if you try to refute his nonsense he will just make up baseless lies and conspiracies about the references you present. He is an old incel man though. He likely wears a diaper already…

  7. Davy on Mon, 30th Apr 2018 8:06 pm 

    3rd world, is this what you were talking about with “The big money is moving East to growing Asia.” lol

    “China’s Out Of Control Borrowing Binge Leads The Global Debt Addiction”
    https://tinyurl.com/y7fdawsq

    “China’s debt has been rising steadily, from 141 percent of GDP in 2008 to 256 percent of GDP in 2017. This type of rapidly-increasing debt level has frequently been the precursor of a hard economic fall, and the world is watching China carefully. While countries such as the U.S. and the U.K. also have large debt-to-GDP ratios, the difference is that both are high-income countries, while China has only reached middle-income status, with only $15,400 in household purchasing power. This is a quarter of the household purchasing power of the US. Getting out of debt on China’s low level of income will be far more difficult than in higher-income nations.”

  8. makati1 on Mon, 30th Apr 2018 8:31 pm 

    Do you have the ability to think Davy?

    China’s ‘$7 Trillion in personal debt amounts to less than $600 per capita. About 4% of that $15,400 middle income.

    Whereas…

    US personal debt is about $58,000 per capita, or about the annual median income of Americans today. I think 100% is much higher than 4%, even in the new math. lol

    http://www.usdebtclock.org/
    https://www.investopedia.com/financial-edge/0912/which-income-class-are-you.aspx

    Read it and weep debt slave. You can pay my share as I no longer pay ANY Us taxes.

  9. Davy on Mon, 30th Apr 2018 8:57 pm 

    3rd world, did you read the reference? China’s debt is huge and it’s income levels so low it will be very difficult to pay off so much debt. Of course you play your stupid per capita game you default to when in a jam. My point has always been China is a mess too. You on the other hand pretend all is well. You have to because you Asian agenda rests on a golden nonsense.

  10. makati1 on Mon, 30th Apr 2018 9:29 pm 

    Davy did you look at the numbers on the Debt Clock? No, I don’t think so. Want to try again?

    http://www.usdebtclock.org/

    You live in a country that is:

    TWENTY ONE TRILLION plus in National Gov’t Debt. Bankrupt.
    ONE TRILLION plus in State Gov’t Debt. Bankrupt.
    TWO TRILLION in Local Gov’t Debt. Bankrupt.
    NINETEEN TRILLION in Personal Debt …

    AND, a per capita liability of almost ONE MILLION DOLLARS for every man woman and child in America. Bankrupt.

    https://wolfstreet.com/2018/01/30/us-national-debt-will-jump-by-617-billion-in-5-months/

    And you want to point a finger at China with a net reserve of OVER THREE TRILLION DOLLARS.

    https://tradingeconomics.com/china/foreign-exchange-reserves

    You have denial down pat Davy. You are so thoroughly brainwashed that you are just plain blind to reality in any form.

    BTW: I never said China was not having difficulties. I just point out that the US is way deeper in the pit and less likely to ever get out, whereas, China has a good chance of doing so, China is moving away from the USD and actually has plans for the future. The Us haws no plans for tomorrow.

    Oh, and those “assets” they claim on the clock are fictitious as their value will evaporate when the SHTF. Pennies on the dollar, or nothing.

  11. MASTERMIND on Mon, 30th Apr 2018 9:53 pm 

    madkat

    The US has the worlds reserve currency. That means we can print as much money as we need to pay our debts. And you don’t have to pay off the entire debt at once. Its just like a credit card. All you have to pay is the min payment, plus interest.

  12. MASTERMIND on Mon, 30th Apr 2018 9:55 pm 

    Madkat

    You prove you are a lunatic by shouting in all caps!

  13. makati1 on Mon, 30th Apr 2018 10:12 pm 

    BTW Davy, total US Debt is about $222% of GDP today. Not far from China’s 256% is it? And the Us is increasing it at billions per day. ‘IF’ the Us numbers were real I am sure the Us is higher than China’s percentage by a long shot. After all, the Us is really in debt for about $113+ Trillion or ~550% of GDP if you use the article’s description. Debt that will NEVER be repaid, but drain the American serf’s blood for their life time.

    Look close at that clock. It is a nightmare for taxpaying American slaves. Not me. LOL

  14. MASTERMIND on Mon, 30th Apr 2018 10:22 pm 

    Madkat

    The US has the worlds reserve currency. They can print however much the debt is. China doesn’t have that option. Don’t worry you will feel the pain when the limits to growth econoic collapse hits. Your shit hole country will be the first to collapse. You ignorant hill billy construction worker.

  15. MASTERMIND on Mon, 30th Apr 2018 10:24 pm 

    Madkat

    You don’t understand anything about debts and economics. Stick to what you know best, hammering nails and working with your hands. There is a good reason why you never worked with your mind growing up. Hint, hint, its worthless.

  16. makati1 on Mon, 30th Apr 2018 10:24 pm 

    MM, you prove your insanity with every post you make, with rare exceptions. Your seem unable to communicate except through your 12 year old persona.

    As for printing…that will not last much longer and when the collapse happens the Us will have toilet paper, not money. The rest of the world will adjust because they have to. The Us will not because it will not be able to. It has nothing of value and is hated in most of the world. Billions will party when it happens.

    Here is a simple article that explains hyper inflation: http://econ.economicshelp.org/2008/04/hyperinflation-causes-costs-and.html

    I suggest you do some reading about Zimbabwe, or Venezuela or any other of the 55 countries that have enjoyed the experience of hyper inflation in the last 100 years. THAT is what is coming to 3rd world America.

  17. makati1 on Mon, 30th Apr 2018 10:36 pm 

    No MM, I do not know how to live in the financial world do I? I owned three homes, raised a family, and am comfortably retired, 11 years at this point.

    First home cost $20K in 1975. Did renovations and a small addition. Sold that one for $75K in 1987. Bought the next one for $65K and sold it for $115K in 2000 after renovations and an addition. Used that to build the last one that sold for over $250K in 2002. Not bad for 27 years of financial ignorance is it? And I am “only” a ‘dirty construction worker’. LMAO

    Oh, and in those years I raised a family with four kids, Paid my taxes and took my family to the seashore for a week every summer.

    Now I am independent and need no outside income to ‘survive’ comfortably for as log as I live. YOU will never be able to do the same. Never!

    So, who is ‘financially stupid? You are the one not working. You are the one wasting your life on the internet proving your ignorance to your betters.

  18. MASTERMIND on Mon, 30th Apr 2018 10:55 pm 

    Madkat

    And what happened to your marriage? Oh yea your wife left you after all those years…You fucking do gooder, too bad you couldn’t “do good’ in marriage….lol

  19. makati1 on Tue, 1st May 2018 12:52 am 

    MM, as you have zero info (or even experience) to base your assertions on, you are just being your usual 12 year old self.

    The particulars are none of your business and are NOT what you keep claiming. Not even close. Sometimes it is just a mutually agreed breakup as the reason for the marriage is no longer valid or both parties have agreed that it is no longer working. It usually is not a case of “dumping” anyone, just another progression in life, but you would not understand that. When older people marry, it is usually NOT because of hormones or even love. Sometimes it is like a contract with an expiration date. A mutual understanding. Not an “until death do us part” commitment.

    As someone who has never been in serious commitment like marriage, you have no idea. I doubt you even have a serious girlfriend. Difficult to attract anyone worthwhile if you are unemployed and living in mom’s basement. ^_^

  20. makati1 on Tue, 1st May 2018 12:54 am 

    MM, no intelligent rebuttal to my “So, who is ‘financially stupid? You are the one not working. You are the one wasting your life on the internet proving your ignorance to your betters” comment?

    Hit the target bullseye didn’t I? LMAO

  21. Davy on Tue, 1st May 2018 5:41 am 

    “Davy did you look at the numbers on the Debt Clock? No, I don’t think so. Want to try again?”
    Old news 3rd world, the debt clock is referenced constantly by you anti-Americans. The point of my comment was not the US is better or worse on its debt exposure than China, this is your binary mentality. My point is China is a mess with debt just as bad or worse depending on what happens in the future. You constantly talk about China and Asia as if there are no issues. China is Asia so if anything bad happens there it happens with you 3rd world.

  22. Davy on Tue, 1st May 2018 5:50 am 

    “BTW Davy, total US Debt is about $222% of GDP today.”
    3rd world, you need to compare apples to apples. I need a reference from you on the $222%. You are very bad about cherry picking numbers then comparing apples to oranges.

    “IF’ the Us numbers were real I am sure the Us is higher than China’s percentage by a long shot. After all, the Us is really in debt for about $113+ Trillion or ~550% of GDP”
    More exaggerated nonsense of the 3rd world senile mind. Please show some references 3rd world then we will talk.

  23. Davy on Tue, 1st May 2018 5:56 am 

    “So, who is ‘financially stupid?”

    3rd world, just because you had a life and did normal things does not mean you understand finance. This shows that you are financially stupid since you are mixing up home economics with macroeconomics and global finance. IMA, you have nothing now but a social security check. This means you lost all assets somewhere along the line. We know you divorced. That took probably over half.
    You have quoted us here on the board how you came to the P’s with 3 suitcases and felt so free. Yea, having nothing means you have nothing to lose.

  24. makati1 on Tue, 1st May 2018 6:16 am 

    Davy, just because you have this superiority complex does not make you right or intelligent.

    I suggest you read the article you ref’ed very closely and see what it actually said. But, no, you will just move to another topic or revert to your 12 year old persona, like MM.

    Again, you make up a fantasy life for me when you have no idea. I arrived with TWO suitcases and have “arrived” with at least TWO more every trip I make to the Us.

    Not to mention that I can transfer $1,000 PER DAY from each of my Us bank accounts without penalty. Ten years here means I could have transferred more than $3,650,000 over that time.

    I keep telling you that I have non-taxable assets/investments here that will keep me for the rest of my life. Intelligent people can do that. They are not stuck on a backwater farm in the Ozarks.

  25. Davy on Tue, 1st May 2018 6:28 am 

    “Davy, just because you have this superiority complex does not make you right or intelligent.”
    3rd world, this is not about superiority. That is what you proselytize daily. You are all about how you are better than we are. You are safe and we are doomed. This is your daily message dumbass.

    “I suggest you read the article you ref’ed very closely and see what it actually said. But, no, you will just move to another topic or revert to your 12 year old persona, like MM.”
    I did 3rd world, reference the part you are referring to.

    “Again, you make up a fantasy life for me when you have no idea. I arrived with TWO suitcases and have “arrived” with at least TWO more every trip I make to the Us.”
    3rd world you see this is where you get tongue tied. You brag and talk yourself up into inconsistencies. You tell on yourself because you are a treasure trove of double standards.

    “Not to mention that I can transfer $1,000 PER DAY from each of my Us bank accounts without penalty. Ten years here means I could have transferred more than $3,650,000 over that time.”
    3rd world, now you are talking like a 1%’er that you constantly attack. What are you dummy? Are you the free guy or the millionaire?

    “I keep telling you that I have non-taxable assets/investments here that will keep me for the rest of my life. Intelligent people can do that. They are not stuck on a backwater farm in the Ozarks.”
    3rd world you are alone in a 3rd world backwater living on a social security check without health insurance claiming to everyone how free you are and how we are slaves. You talk about a fantasy farm but you are here most of the day. I could understand that if you were like me and have a cell phone. I take my breaks to enjoy crushing your agenda. It is enjoyment. You on the other hand must sit behind your PC for long house doing little but sitting. You are pushing 80 so it is clear you don’t do much but talk.

  26. fmr-paultard on Tue, 1st May 2018 8:18 am 

    i’m scared because i’m told be recipents of prestigious Baghdad Bob award for telling fake news ….i’m mtold brilliant flashes and that came to pass. then i’m told iran revenge!
    and then i’m told china invading america

    i have good news though. we just sold some javelins to ukraine for some doughs. money is good. and they get to take back their territory stole by putin

  27. fmr-paultard on Tue, 1st May 2018 8:22 am 

    ok i’m told china is now the soruce of brilliant lights. i don’t think i’m able to sleep for the next 4 months.
    i’m just watchng this video about china and they’re very logical people. they do everything logically and intelligently.

    clearly i’m a tard and i can’t understand their “way”. that’s why i’m scared i’m losing my supertards to them. my supertards will go to bejing and drink to death.

    WE”RE DOOMED

    https://www.youtube.com/watch?v=sJ3fG-tnzCk

  28. fmr-paultard on Tue, 1st May 2018 9:01 am 

    according to this video we can take over iran but we have to adopt chinese’s methodology when dealing with islamists. we also need to suppress alt-tard media at home when we do this.

  29. MASTERMIND on Tue, 1st May 2018 9:26 am 

    Madkat

    Show me some evidence that just the US will collapse and everywhere else will be fine. Prove yourself! Or shut the hell up..

    I’ll be waiting..

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