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.
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.
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.
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...
Beijing has expanded its military presence in the South China Sea with the construction of seven new military bases, the head of the US Pacific Command told Congress this week.
"China's built up reclaimed islands in the South China Sea in the past year, with aircraft hangers, military barracks and extended runways to the point where China has seven operational bases in the busy international shipping waterway," US Navy Admiral Harry Harris said.
The facilities include jet hangars, barracks, radar houses, weapon emplacements and 10,000-foot runways, Harris added.
The admiral, who has been tapped by the White House to become the next US ambassador to Australia, explained that China's military is quickly catching up to the US "across almost every domain."
China is "attempting to assert de facto sovereignty over disputed maritime features by further militarizing its man-made bases," he said.
Trillions of dollars' worth of trade goods pass through the South China Sea annually. Islets and certain regions of the waterway are heavily disputed by several countries, including China, Brunei, Vietnam, Taiwan, Malaysia and the Philippines.
China's approach to militarizing islands on the South China Sea has been "coordinated, methodical and strategic," Harris noted, adding that Beijing is "using their military and economic power to erode the free and open international order."
Russian Foreign Minister Sergei Lavrov has warned that the US' own increasing military presence in the region may lead to clashes.
"I think that these are very risky games. The United States is already looking not only at North Korea, although it justifies its military presence by the North Korean issue, but also at the South China Sea, where China is holding negotiations with the Association of Southeast Asian Nations (ASEAN) countries on the settlement of disputed territorial issues."
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