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The End Of The Petrodollar? China Unveils Oil-Futures Launch Date

Public Policy

After decades of dollar-hegemonic control, the world’s biggest oil buyer is finally getting its own crude-futures contract – the so-called ‘petro-yuan’ is born.

The start of trading, open to foreigners, will mark the end of years of delays and setbacks since China’s first attempt at a domestic contract in 1993.

Following December’s final successful test, in a challenge to the world’s dollar-denominated oil benchmarks Brent and West Texas Intermediate, China will list local-currency crude futures in Shanghai on March 26, according to the nation’s securities regulator.

While some details of the contract such as the size (1,000 barrels per lot) and grades have been released, other information like the delivery depots for the crude are yet to be announced.

“The intention is to release more details as the launch date approaches,” Meidan said on Friday. “If the date has been settled, then it is pretty close to a finalized contract, because at this point, both Beijing and the Shanghai Futures Exchange can’t afford for the start-up to go wrong.”

As Bloomberg reports, China surpassed the U.S. as the world’s biggest oil importer last year, buying about 8.43 million barrels a day to feed demand from government-run as well as independent refiners.

The nation has also been hoarding millions of barrels for its Strategic Petroleum Reserve. Rather than buying how much ever crude they want, private companies have to adhere to government-issued quotas for their purchases. And this year such allocations expanded.

“The ability for foreign producers and consumers to price hedging contracts on a domestic China commodities exchange using yuan is a game changer,” said John Browning, Shanghai-based managing partner at BANDS Financial Ltd., one of the brokerages approved for offshore trading on the contracts.

“Apart from consumers and producers, for investors and commodity arbitragers, the Chinese commodity futures markets are deep pools of liquidity that international traders have been clamouring for access for many years,” Browning said.

While international investors may prove circumspect, there’s little doubt the Chinese will embrace their own oil futures enthusiastically.

Bloomberg finally points out that international commodity trading houses such as Mercuria Energy Group, Vitol Group and Glencore  could potentially use the futures for trading arbitrage and hedging, according to Chen Tong, an oil analyst with Tianjin-based First Futures Co. The contract may also be attractive for financial institutions such as investment banks and funds, he said before the announcement.

“First, the trading volumes need to get active, then domestic refiners need to end up using it as a benchmark for trading, and eventually it could reach its aim of becoming a pricing benchmark for Asia,” Chen said. “For yuan internationalization, of course, it fits the mission, with more and more oil-producing countries moving away from dollar-linked oil contracts.”

If the futures are embraced by overseas investors and become a benchmark for global oil transactions, China’s hoping the yuan could challenge the dominance of the greenback in international trade.

As The South China Morning Post reports, the trading start in late March echoed earlier market speculation that the crude contract would not receive a go-ahead until the end of the annual session of the National People’s Congress, which starts on March 5.

“It will be just a baby step ­towards gaining pricing power in crude oil,” said Wang Feng, the chairman of Shanghai-based financial services firm Ye Lang Capital. “A high turnover will not [necessarily] translate into a real pricing benchmark.”

Huang added: “Globalisation is a long, long process … The Shanghai crude contract is just providing a yuan-denominated hedging tool for domestic oil companies and consumers. It will take several years before the ­contract becomes a regional benchmark.”

Still, as Bloomberg reports,skeptics say that won’t happen as long as the currency is controlled by the central government, and while international traders may agree to settle contracts converted into yuan, they’ll continue to price the oil in dollars.

“This is a first small step toward China becoming a more active price setter in oil, but for Shanghai to come anything close to a global benchmark, it will take years,” Michal Meidan, an analyst at industry consultant Energy Aspects Ltd., said before the announcement.

“While this gives another impetus to liberalise the yuan, there are bigger obstacles related to volatility and capital outflows that will dictate the pace.”

Additionally,’s Irina Slav notes that analysts interviewed by Bloomberg’s Sungwoo Park note that the dollar has been the currency that oil trade is done in for decades — and old habits die hard. But it’s not just about habit; it’s also about transparency. Beijing has been open about its intentions to make the yuan an international currency, but the government’s grip on capital flows from and into the country is unlikely to woo foreign investors despite efforts that China is making to assure them its financial markets are transparent and free.

In the long run, it would make sense for many oil trades to be carried out in the currency of the top importer. But it would take years for the yuan to undermine the dollar as the ultimate petrocurrency and it would also involve risks, some observers familiar with Robert Triffin’s Dilemma have noted.

China seems to want the yuan to become the new international reserve currency. But, as goes the dilemma, this would mean that China would have to transform from a major exporter to an importer, which would strengthen the currency but necessitate it to generate a trade deficit. The reason the U.S. dollar became the global reserve currency was the country’s ever-growing trade deficit, said Triffin back in the 1950s, and it is the reason it is still maintaining this position.

An unavoidable consequence of an international yuan would be the lower competitiveness of locally produced, export-bound goods, which is hardly something Beijing wants to happen, at least in the short term. Yet it is very unlikely that President Xi is only thinking about the short term. The Belt and Road initiative is a long-term comprehensive plan to expand China’s presence in the world and its clout across industries.

Yes, it would take years for the yuan to replace the greenback as the petrocurrency the world uses. And it better take years — a lot of them — so the local industries have time to adjust. China is already moving from heavy industries to services. Now it will have to accelerate and expand this process. But skeptics say this won’t save it from falling into the trap of the Triffin Dilemma. Well, it wouldn’t — but judging by the American economy’s growth, despite the 2017 trade deficit that hit the highest since 2008, the trap may not be too uncomfortable to sit in.

But, as we detailed previously, some see the writing is on the wall for dollar hegemony, and we suspect the decline in global yuan trade volumes is another reason for China to push ahead sooner.

As Russian President Vladimir Putin said almost two months ago during the BRICs summit in Xiamen,

“Russia shares the BRICS countries’ concerns over the unfairness of the global financial and economic architecture, which does not give due regard to the growing weight of the emerging economies. We are ready to work together with our partners to promote international financial regulation reforms and to overcome the excessive domination of the limited number of reserve currencies.”

As Pepe Escobar recently noted, ‘to overcome the excessive domination of the limited number of reserve currencies’ is the politest way of stating what the BRICS have been discussing for years now; how to bypass the US dollar, as well as the petrodollar.

Beijing is ready to step up the game. Soon China will launch a crude oil futures contract priced in yuan. This means that Russia – as well as Iran, the other key node of Eurasia integration – may bypass US sanctions by trading energy in their own currencies, or in yuan. Inbuilt in the move is a true Chinese win-win; the yuan – according to some – will be fully convertible into gold on both the Shanghai and Hong Kong exchanges.

The new triad of oil, yuan and gold is actually a win-win-win. No problem at all if energy providers prefer to be paid in physical gold instead of yuan. The key message is the US dollar being bypassed.

China’s plans for oil futures trading go back more than two decades, with the government introducing a domestic crude contract in 1993 and stopping a year later amid an overhaul of its energy industry. But in 2013, we first hinted at the birth of the petroyuan was looming

In doing so China is effectively lobbing the first shot across the bow of the Petrodollar system, and more importantly, the key support of the USD in the international arena… setting the scene for the petroyuan.

*  *  *

And now it just became one step closer to reality, which, according to Adam Levinson, of hedge fund manager Graticule Asset Management Asia,will be a “wake up call” for investors who haven’t paid attention to the plans.

However, not everyone is so sure of the petroyuan contracts’ game-changer-ness, as MishTalk’s Mike Shedlock suggests, it is meaningless what oil is priced in. It makes no difference, outside of something illiquid like Yap Island stones, what any commodity is priced in. Conversion is instantaneous. But even Mish is not positive on the survival of the petrodollar:

Is this end of the petro-dollar in the Mideast? Actually, yes. But the Yuan has nothing to do with it.

If the US no longer runs trade deficits with the Mideast, they no longer need to accumulate US dollar reserves.

China is now the biggest importer of crude in the world. If China starts running perpetual trade deficits with OPEC countries, it makes sense for OPEC to hold Yuan reserves as long as the OPEC countries trust the yuan.

Yuan has certainly been bid since Chinese regulators finished testing the petroyuan contract successfully…


33 Comments on "The End Of The Petrodollar? China Unveils Oil-Futures Launch Date"

  1. Shortend on Fri, 16th Feb 2018 8:17 am 

    With the Republicans in Washington spending more like drunken sailors on shore leave, this is just a matter of time.
    Total irresponsible fiscal policies.
    Once its gone, it ain’t coming back.
    Messing up on a good thing.

  2. makati1 on Fri, 16th Feb 2018 8:25 am 

    The Great Leveling continues…

  3. twocats on Fri, 16th Feb 2018 11:15 am 

    It’s a very interesting dynamic – for the past decade there has been an absolute race to the bottom to devalue currencies by their respective countries. Debt issuance out of these countries has ballooned (China and US particularly).

    But simultaneously these countries are vying to be reserve currencies? presumably dependent upon their stability and their “value” (i.e. back by the FULL FAITH AND CREDIT) of these very same countries?

    There are a lot of factors at play, from reserve currency, to export status (weak currency means strong exports), to bubble dynamics, to peak oil dynamic. Honestly, I see the setting up of an exchange by China as less a move to be “dominant world reserve currency” to more as a preparation for global disintegration and realignment of trade routes. Think of the petro-yuan as more akin to the Silk Road project than a move towards world domination.

    I could be wrong – but if China really wanted to destroy the dollar it could have easily done that. yeah yeah, it would have also felt some pain – but instead of spending the last ten years REDUCING how much pain they would cause themselves they’ve VASTLY EXPANDED their shadow banking industry. China is now arguably IN WORSE SHAPE than the US. That’s really hard to believe they would do that if they wanted to be the world’s reserve currency.

  4. Davy on Fri, 16th Feb 2018 11:31 am 

    “They” can each destroy each others currency and doing so destroy all the world’s currency. BTW, this is about more than currencies it is systematic with the entire global financial system. So when you say China could easily destroy the dollar you are also saying China can destroy other currencies in the process. There is no getting around this reality today.

    The shag carpet road will be another bubble malinvestment. If China was good at investing then why do so many try to get out of the country with their wealth? Obviously returns are not as good internally as searching the world for yields. This is like a divorce. It is too expensive to leave each other. It is anyone’s guess what will happen when SHTF however that will end up. SHTF is a generalization. The details are real life.

  5. Anonymouse1 on Fri, 16th Feb 2018 11:52 am 

    No one cares about your raging sino-phobia dumbass. The only thing more boring and pointless than the rambling, disjointed diatribes you fart out on an almost daily basis, is your endless whining about China.


  6. Cloggie on Fri, 16th Feb 2018 12:04 pm

    Interesting picture after 1 week Olympics. Gold medal tally:

    Continental western Europe……..31
    Anglosphere (US/UK/CAN/AUS/NZ)…..9


    Davy’s “lazy Europeans” in actions.

    One is reminded of other statistics:

    That fact that the US is “on top” is actually not in line with realistic weight-distribution and only came about because the US (deep state) had allied itself with the worst regime in history by far, the USSR. And once they had besieged poor Germany, they could accuse the hapless Germans of everything, while having a good time with German women.


    Things are going to be corrected soon and natural hierarchies restored. All we in Europe need to do is wait for the “Spencerites” to be ready and swap camps:

    (expect Davy to chime in and shout “anti-Americanism!”)

  7. Outcast_Searcher on Fri, 16th Feb 2018 12:21 pm 

    The world changes over time. I’m shocked. SHOCKED, I tell you!

    Another way it changes is the maturation of computers, networks, volumes, and reliability.

    The FX markets routinely trade an average of $5 trillion of various currencies a day.

    When any entity and a brain can hold any basket of currencies they choose to (if they’re willing to bear the currency risk), the actual impact of which currency is considered a reserve currency isn’t a big deal.

    China is supplanting the US as the primary global economic power over time, due to sheer population size and faster economic growth. Anyone paying attention already knows this.

    So for China to supplant the US as the reserve currency over the coming decades is perfectly natural.

    Given the modern FX markets, it’s not 1925ish. It’s not even 1970ish when needing to hold large amounts of dollars in accounts by entities to buy oil is more than a book keeping requirement.

    I was glad to see an article like this finally point this issue out re:

    “However, not everyone is so sure of the petroyuan contracts’ game-changer-ness, as MishTalk’s Mike Shedlock suggests, it is meaningless what oil is priced in. It makes no difference, outside of something illiquid like Yap Island stones, what any commodity is priced in. Conversion is instantaneous.”

    Not that the fast crash doom crowd will want to admit it, but doom will need to come from something meaningful like AGW or food shortages, not currency conversion occurring over decades.

  8. Duncan Idaho on Fri, 16th Feb 2018 12:36 pm 

    “Continental western Europe……..31
    Anglosphere (US/UK/CAN/AUS/NZ)…..9”

    Just the mature adults competing.
    Seems like us adolescents in the US just have school shootings?- or am I reading this wrong.

    Not that we don’t have some great athletes– just need to let them be athletes.

  9. Davy on Fri, 16th Feb 2018 12:52 pm 

    ‘No one cares about your raging sino-phobia dumbass.”

    WEASEL, if you say something we can have a debate like when you stuck your foot in your mouth with the Canadian oil sands you wanted everyone to know were really American oilsands. Lol, I handed you your ass with that one.

  10. Davy on Fri, 16th Feb 2018 12:56 pm 

    “Davy’s “lazy Europeans” in actions.”

    neder, for God’s sake it is the winter Olympics. Please calm down it’s not the glorious manifestation of the PBM fantasy empire beginning its rise.

  11. Davy on Fri, 16th Feb 2018 12:58 pm 

    “expect Davy to chime in and shout “anti-Americanism!”

    more like dirty racist Nazi pig

  12. Cloggie on Fri, 16th Feb 2018 1:07 pm 

    “more like dirty racist Nazi pig”

    The “exceptionalist” is mad again.rofl.

    To be fair to Davy, the US behind Holland and Norway, that must be hard to swallow, not very “exceptional”. I mean the US has mountains, thank God for the rest of the world, Holland doesn’t, otherwise they would win everything.rofl

  13. MASTERMIND on Fri, 16th Feb 2018 1:10 pm 


  14. Davy on Fri, 16th Feb 2018 1:14 pm 

    “Agitprop Is Not News”

    “The longer this fantasy about Russia continues from the Left side of the political transect, the deeper the nation sinks into a dangerous collective psychosis. After all this time, the only known instances of American political figures “colluding” with Russians involve the shenanigans between the DNC, the Hillary Clinton campaign, and US intel services including the FBI and CIA, in paying for the “Steele Dossier” and the activities of the Fusion GPS company that claimed Russia hacked Hillary’s and John Podesta’s email. There is now a ton of evidence about all this monkey business, and no sign (yet) that Special Prosecutor Robert Mueller may be taking a good hard look at it, not to mention the professional misconduct of a half dozen senior FBI, NSA, and CIA officials, especially former CIA chief John Brennan, who has now morphed into a CNN “analyst,” taking an active role in what amounts to a psy-ops campaign to shove the public toward war.”

    “PS: Readers may wonder why I did not devote this space to the school shooting in Parkland, Florida. It is exactly what you get in a society that wants to erase behavioral boundaries. It is especially dangerous where adolescent boys are concerned. The country has a gigantic boundary problem. We have also created perfect conditions — between the anomie of suburbia and the dreariness of our school systems — to induce explosions of violent despair. That’s why these things happen. Until we change these conditions, expect ever more of it.”

  15. Davy on Fri, 16th Feb 2018 1:18 pm 

    “exceptionalist” yea when compared to a nazi pig it is not hard to be exceptional or a weasel Canadian basement dwelling millennial waste case. LOL. Thanks for all the attention numbnuts it just allows my message more exposure. It means I am cleaning up the scum here on this board.

  16. twocats on Fri, 16th Feb 2018 1:25 pm 

    what I was referring to specifically Davy was the 2008 housing crises, if China had dumped all of its treasuries onto the market at that moment it would have been catastrophic for faith not only in US currency, but their ability to ensure global stability. China made a calculated decision to not do it (Russia was on board) and then they joined in the Debt bonanza of the past decade. So I agree with what you are saying about TODAY. But 10 years ago the world was very different.

  17. MASTERMIND on Fri, 16th Feb 2018 1:25 pm 

    I hope they bomb Russia and Putin back into the stone ages….We could take their oil and gas reserves as well….Then we could fill in the gap left by fracking and be oil independent!

  18. twocats on Fri, 16th Feb 2018 1:29 pm 

    you did seem a little defensive but that’s between you and the rest of the board. as far as I’m concerned – we are good and I appreciate your comments. note that I even said, “China is now arguably IN WORSE SHAPE than the US” which I thought made it clear I wasn’t just rah-rah-rah about China.

  19. Davy on Fri, 16th Feb 2018 2:14 pm 

    Twocat, who would have purchased them? There was no market. China, was just as as screwed at that point. In fact it was the FED that lubricated the world with dollars especially Europe and their Eurodollars as the world liquidity was drying up. China could have dumped treasuries and it might have meant the end of the world as we know it . 10 years have past and the Yuan is still using the dollar as a reference.

  20. Davy on Fri, 16th Feb 2018 2:19 pm 

    Two cats I wish there were more people posting like you. You are on topic and rise above the barroom brawls associated with stupid agendas. I apologize I am so used to fighting battles my comments take on that appearance. Keep up the good work and keep me honest.

  21. Twocats on Fri, 16th Feb 2018 5:17 pm 

    I feel you. It’s hard once a tone has been set. Can’t just turn it off and on like a faucet. Likewise thanks for keeping a crucial perspective here on the board. I don’t always agree with it (though I usually do) and that’s part of the point. I’m not here for a circle jerk.

  22. makati1 on Sat, 17th Feb 2018 5:28 am 

    Amerika today:

    “America: A Military Nation”
    “Falsehoods And Lies: Inciting War Is A War Crime”
    “Why Even Pretend There’s A Debt Ceiling Limit?”
    “Nobody Wants To Admit To The Real Reasons Behind American Mass Shootings”
    “Admiral Warns US Must Prepare For Possible War With China”
    “Shots Fired At Highline College In Des Moines, WA; School On Lockdown”
    “Kunstler On The American Left’s Dangerous Collective Psychosis”

    And the beat goes on…

  23. Davy on Sat, 17th Feb 2018 5:38 am 

    billy 3rd world are you too stupid to actually offer a title with a link and highlight your points in a coherent statement? Instead you use your one liners like “beat goes on” slip sliding” “put the mad dog down”. You are a stupid old man that is incapable of saying anything of substance. You are afraid to meet me head on because I always bury you. This happens with dumbasses wrapped up in agenda. Agendas is easily peeled off with just a few cuts.

  24. Cloggie on Sat, 17th Feb 2018 6:09 am 

    Earlier this morning, surprise from Germany. Present and future German foreign minister Sigmar Gabriel (if Merkel succeeds in setting up her fourth government), has said during the prestigious Munich Security Conference, with guests like Theresa May, Lavrov, McMasters and Austrian PM Kurz, that he wants a step-wise abandoning of anti-Russian sanctions.


    Putin to Gabriel: “our German friends know we will remain friends”


  25. Davy on Sat, 17th Feb 2018 6:31 am 

    PBM is nonsense. These nations are all ultra nationalist and always will be. They all have outsized pride in themselves. They will turn on the other in war if the case ever presents itself. You should know this neder. You are the self described history nutbar fantasy revisionist.

  26. Cloggie on Sat, 17th Feb 2018 6:38 am 

    PBM is nonsense.

    Are you calling Putin “nonsense”?

    These nations are all ultra nationalist and always will be.

    Ever heard of the EU?

    Bow for your new

    (Canada just surpassed the US)

  27. Cloggie on Sat, 17th Feb 2018 7:15 am 

    You should know this neder. You are the self described history nutbar fantasy revisionist.

    You have internalized my revisionist version of history completely, otherwise you would have challenged it.

    You are not even willing to repeat the official lie, namely that “Germany wanted to conquer ze wurld and noble Alllies stopped them from doing it”, because even a complete lying fraud like you knows by now that that pack of lies can’t be defended anymore.

    But Davy is still peddling the “Final Solution”, invented by the All-lies in Nuremberg…

    …which in reality meant the deportation from Europe of all the Jews back to where they had come from hundred years earlier, namely the Ukraine area:

    Because, as the Germans reasoned, if you don’t, they take over your country, by taking over your media and banking industry first, and next your government, like gradually happened in the US between 1913 (FED) and November 2016.

    And had happened with Russia after 1917, when Leon Trotzky, with 1 billion worth of today’s money, smart money from Wallstreet mogul (((Jacob Schiff))), with disastrous humanitarian results.

    The Americans managed to maneuver themselves into their desired war with Germany (via the Japanese backdoor and entirely provoked PH-attack), a war they had been preparing for since 1933, so long before the All-lies had managed to set up a victors court in Nuremberg, enabling them to create the justification for the war in hindsight.

    This was the first time in history where a victor created a “moral war”, or a “good war”, in hindsight, based on a vicious pack of lies. A pack of lies Davy KNOWS is a pack of lies, but he is nevertheless willing to perpetuate the lies, because it makes his club look good, truth be damned. That’s why Davy is such a despicable lying individual.

  28. Davy on Sat, 17th Feb 2018 7:44 am 

    Nedernazi, this not a Jew bait wwii europhoenix site but that is what you try to make it day and night. Does your dumbass ever sleep? You are proselytizing off topic and all this is invasive noise. I have zero respect for people like you and 3rd world billy and all your enablers that have your hate rally’s. You pat each other on the back and play nice guys but the reality is all of you are disgusting individuals full of hate. You gang bang to enforce your “fake” majority of just a few people. A bunch of dumb white old men without a life whining and acting tough. PUSSIES

  29. JH Wyoming on Sat, 17th Feb 2018 1:34 pm 

    Face it, it’s just a matter of time now until most oil is sold/traded in China’s currency. The US has made too many enemies. Go China, Go!!!

  30. MASTERMIND on Sat, 17th Feb 2018 1:49 pm 

    LOL look at CLogg sources..Documents.wordpress..LOL that is really professional clogg! I bet any college professor would let you cite that for any paper! LOL

  31. Dooma on Sat, 17th Feb 2018 10:41 pm 

    ” If China was good at investing then why do so many try to get out of the country with their wealth? Obviously, returns are not as good internally as searching the world for yields.”

    How do you know that Davy is dumb as dog shit?

    As above he makes a total arse of himself like this. Typical insular, know-all fuck-all.
    Try learning a bit about China’s history such as the cultural revolution, and if you were an older Chinese person, you might be a little nervous about home wealth STORING, not INVESTING.

    But you are Davy, all-knowing of anything American and just make the rest up.

  32. joe on Mon, 19th Feb 2018 5:09 am 

    Two things. 1. Nobody even knows what the hell the winter Olympics even are. (As far as I remember there was one where Tanya Harding kneecapped her opponent and that stupid curling game). 2. Since most people hate the cold and the snow and instead stay in the warmth and have lots of sex then its no wonder that euro-loser countries can win. Scandinavian countries and Russia etc can get a break cause they don’t get a choice, but Cloggie, dude, you claim you are from Holland, the most snow you guys get is the legal cocaine and other shit you guys are zombified with.

  33. Davy on Mon, 19th Feb 2018 5:27 am 

    “How do you know that Davy is dumb as dog shit?”
    Dumba, I actually read the news and follow world events. I am not like you stalking and pricking anti-Americans from Australian and Canada that act like you are smart as shit but all you can do on this board is prick Americans. You are a monthly drop in so you are irrelevant.

    “Try learning a bit about China’s history”
    I know more about history than you ever will dumba. You demonstrate how stupid you are whenever you drop in to our board which is rare….thank god.

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