Peak Oil News and Message Boards

China is proposing to make it's currency a reserve currency. This is a direct attack on foundation of US economic strength. What is worst is some putative allies of US seem to be backing China on this. See link below
http://www.wsj.com/articles/momentum-bu ... 1427926918

Where was it written that the US alone is entitled to a reserve currency? China understands that the US will eventually try to inflate its debts away. Seems like developing a 'Plan B' is only prudent considering China's other problems. They've been on a mission to acquire hard assets for years, along with moving to trade-with-other-than-dollars. Makes sense to me, considering the west's idiotic financial policies, but I doubt they expect to come out smelling like a rose as they have their own messes to deal with.

This isn't so much a jab at the US as a survival strategy. When true price discovery returns to global markets, all bets are off.

G, it may not be a direct jab on US, but this reserve currency shift threatens to strike at a pillar of US economic policy of having the dollar as the reserve currency especially for oil transactions. Maybe if this was a single isolated incident but taken with other events happening recently it seems the world is united in it's intention to reduce US power and influence.

onlooker wrote:G, it may not be a direct jab on US, but this reserve currency shift threatens to strike at a pillar of US economic policy of having the dollar as the reserve currency especially for oil transactions. Maybe if this was a single isolated incident but taken with other events happening recently it seems the world is united in it's intention to reduce US power and influence.

1). I don't buy the whole US reserve currency thing being a big deal. Since modern markets with fast reliable computers include FOREX markets, etc., there is no longer any need for foreign countries to hold large amounts of US dollars they don't want. (One second before, say, buying a bunch of oil, they can trade in their "currency X" they prefer to hold for dollars, and then buy the oil).

2). Maybe if the US would spend more time minding ITS business and doing things like becoming energy dependent and paying down its debts instead of, say, attacking anyone they don't agree with (if they don't expect major consequences), the world wouldn't NEED to feel threatened by its power and influence? (I say this as a US citizen who thinks we could use more education, infrastructure, etc. and less military adventurism -- given how badly it tends to turn out).

Outcast_Searcher wrote:

onlooker wrote:G, it may not be a direct jab on US, but this reserve currency shift threatens to strike at a pillar of US economic policy of having the dollar as the reserve currency especially for oil transactions. Maybe if this was a single isolated incident but taken with other events happening recently it seems the world is united in it's intention to reduce US power and influence.

1). I don't buy the whole US reserve currency thing being a big deal. Since modern markets with fast reliable computers include FOREX markets, etc., there is no longer any need for foreign countries to hold large amounts of US dollars they don't want. (One second before, say, buying a bunch of oil, they can trade in their "currency X" they prefer to hold for dollars, and then buy the oil).

2). Maybe if the US would spend more time minding ITS business and doing things like becoming energy dependent and paying down its debts instead of, say, attacking anyone they don't agree with (if they don't expect major consequences), the world wouldn't NEED to feel threatened by its power and influence? (I say this as a US citizen who thinks we could use more education, infrastructure, etc. and less military adventurism -- given how badly it tends to turn out).

Outcast your making a lot of sense with No. 2 , as for 1 I guess you know how it works down in the trenches so I take your word for it , that reserve currency is no longer a big deal.

A little sidebar to the Chinese muscle flexing story. Been a while since the intrusion of not only China but Saudi Arabia into refined product marketing as opposed to just selling oil. This one refinery JV removes about 140+ million bbls of oil per year from the value stream of refineries in other countries…in particular the EU. But it also gives China more control. At the moment the Chinese may be selling their share of the output in the open market place while the KSA is using their share to replace expensive product imports. But the day may come where China will ship those products back to the homeland and ignore the normal market forces of selling to the highest bidder.

A while 140 million bbls/year isn’t very much compared to global oil consumption it is but one small cog in the giant machine that China has been building for more than 15 years that will allow them to control the disposition of a growing volume of global oil production.

Reuters - The Yasref refinery in Saudi Arabia, a joint venture between Saudi Aramco and China's Sinopec has exported its first shipment of petroleum coke, the company said on Tuesday. The new 400,000 barrel per day refinery had previously started exports of diesel and gasoline.
Yasref loaded 49,000 tonnes of petcoke from the port in Yanbu to an unknown destination, Yasref said. An industry source told Reuters the shipment went to India.
Petroleum coke is produced by oil refiners from the heaviest, higher-sulphur crudes. It is a higher-energy, higher- sulphur fuel than most thermal coal. The refinery processes Arabian heavy crude.

Seems this is just another indication of tectonic geo-political shifts. Saudi Arabia is partnering with China because they see the immense potential of the Chinese market. I cannot but think US does not really approve but this is just a sign of the times.

Onlooker - It's more than just accessing the Chinese product market. The KSA uses Chinese capex and manpower to build and run the refineries. In addition the KSA takes their share as a substitute for expensive product imports they've always been dependent upon. Essentially they pick up that portion of the value stream foreign refiners used to capture. IOW the profit/revenue of selling refined products is greater than selling oil. In addition it gives both China and the KSA more leverage in the global political playground. Displease either country and those products might not make it to your county's consumer. Just consider the Russian leverage on the EU with respect to NG. Imagine if the EU were increasingly more dependent of KSA/China product imports instead of getting them from EU refineries. Actually pretty easy to imagine if you've kept tract of the EU refineries that have been reducing output and, in some cases, completely shutting down.

ROCKMAN and all:

A friendly reminder that China is not the only one engaged in joint refining projects with Saudi Aramco. We should acknowledge Sumitomo Chemical (Japan), Mobil [XOM] (US), Shell (England/Holland), and Total (France). It's a sensible thing to do.

Syn - A valid point for sure. But one clear distinction: those companies will be driven by their individual corporate interests. The Chinese ops will be driven by the interest of one of the largest energy consuming nations on the planet that's projected to continue to grow significantly. An efforts controlled by a single power compared to multiple boards of directors governed solely by their individual economic considerations. ExxonMobil will make decision based on what's best for it. The Chinese companies will make decisions based on what's best for China. Or those managers will quickly find themselves in govt "re-education camps".

An option I'm sure the US govt wished it had available. LOL

ROCKMAN,

But of course. The same is to be kept in mind of Saudi Aramco, and they're present in every one of the JVs.

Sub - Exactly. The bottom line is that even the biggest US Big Oil is no competition for the JV's between the NOC's and the Chinese govt. Not that there's a way around it but the US govt is rather impotent in such matters. In fact, many of the contract provisions between China and those NOC's are classified as criminal violations by the US govt. Even the broad concept of the US anti-monopoly laws are a mute point.

At the moment the current US govt's primary focus is on continuing to sell the KSA $BILLION in arms (like the $47 billion sold by the current administration) then developing access to their oil. Think if the US govt had made letting US companies form those refining JV's as a contingent requirement for those arm sales? Of course the majority of the US public would have been outraged at the idea of its govt doing anything to aid the business plan of our oil patch...even if it did benefit the US consumer in the long run.

Some like to say the Chinese are playing chess and the US govt is paying checkers. I disagree: as the chess and checkers games are being played in the park by a host of countries and the US is just sitting on a bench feeding the pigeons. LOL.