The End Of The Petrodollar? China Unveils Oil-Futures Launch Date | Zero Hedge
Description: "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."

Skip to main content

## Opinion: Et Tu, The Intercept? Smear Of Assange Murderously Timed

by Elizabeth Lea Vos - Feb 15, 2018 6:34 pm

The Intercept has published a disingenuous and sloppy character assassination against Julian Assange

## Researchers: Eating Processed Foods Greatly Increases Chances of Getting Cancer

by The_Real_Fly - Feb 15, 2018 9:33 am

Eat junk, get cancer.

## How You Can Distinguish Fake News from Real News, According to the Expert

by TDB - Feb 15, 2018 9:52 am

"It’s as if the media had been given its marching orders."

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

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, OilPrice.com'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...

Tags
Business Finance
Oil & Gas Refining and Marketing - NEC
Travel Agents
Coal - NEC
Financial & Commodity Market Operators - NEC

## Comments

Sort by
Order
Items per page
Vote up!
7
Vote down!
7
gwar5 Thu, 02/15/2018 - 19:10 Permalink

We don't need Saudi oil. We have our own and can export. Plus coal. Plus gas.

Drill baby drill!

Vote up!
2
Vote down!
4
MozartIII gwar5 Thu, 02/15/2018 - 19:14 Permalink

Meh! More drama.

In reply to We don't need Saudi oil. We… by gwar5

Vote up!
4
Vote down!
0
yogibear MozartIII Thu, 02/15/2018 - 19:21 Permalink

Keep printing Federal Reserve.

Zimbabwe economics American style.

In reply to Meh! More drama. by MozartIII

Vote up!
1
Vote down!
1
El Oregonian yogibear Thu, 02/15/2018 - 19:23 Permalink

Tesla technology...

Solved.

In reply to Keep printing Federal… by yogibear

Vote up!
2
Vote down!
0
SickDollar yogibear Thu, 02/15/2018 - 19:23 Permalink

Fuck the sick Dollah

i want some pet rocks

In reply to Keep printing Federal… by yogibear

Vote up!
1
Vote down!
0
SeuMadruga yogibear Thu, 02/15/2018 - 19:37 Permalink

Did Mr. Triffin account for eurodollars (i.e. offshore dollars) and shadow banking when conceiving his famous "paradox" ?

In reply to Keep printing Federal… by yogibear

Vote up!
1
Vote down!
0
SickDollar MozartIII Thu, 02/15/2018 - 19:22 Permalink

Fuck the Dollah

In reply to Meh! More drama. by MozartIII

Vote up!
0
Vote down!
0
Bay of Pigs SickDollar Thu, 02/15/2018 - 19:43 Permalink

Hey, what ever happened to ZH chat? Did Sac or the Tylers turf it?

In reply to Fuck the Dollah by SickDollar

Vote up!
2
Vote down!
0
Fiat Pirate gwar5 Thu, 02/15/2018 - 19:16 Permalink

Fuck the Zionist up the ass hard then kill them.

In reply to We don't need Saudi oil. We… by gwar5

Vote up!
2
Vote down!
0
veritas semper… gwar5 Thu, 02/15/2018 - 19:34 Permalink

"

We don't need Saudi oil. We have our own and can export. Plus coal. Plus gas.

Drill baby drill!"

No.We don't .The ROI on fracking is UNACCEPTABLE.Even with fracking ,JUSA still imports impressive amounts of oil.

And it's not a matter of only oil and gas and coal,you obviously do not understand what a petro-dollar is.

The petro-f*cking-dollar,which gives the US the "exorbitant privilege" ,does not refer to only oil/gas. It means that the rest of the world is forced to use dollars as exchange currency,as our ally ,Saudi Barbaria is selling their oil in $(and the rest of the Gulf ,OPEC countries)The US can print and export inflation,the rest of the world is recycling the $ in US T bills,and this way is supporting the US deficit spending,including its military aggression. This way,US is A PARASITE,living on the back of the world.

Let's see how "great" really US is without its petro-f*cking-$,how great its economy is. I bet JUSA will quickly transform into a gigantic sh*thole without the petro-f*cking-$.

Why do you think US has all these wars? TO PROTECT ITS PETRO_$.

Why so afraid to lose it?

In reply to We don't need Saudi oil. We… by gwar5

Vote up!
0
Vote down!
0
loveyajimbo gwar5 Thu, 02/15/2018 - 19:40 Permalink

Dream on... shale oil is shit... about the same as Canadian oil sand crappola... and it is already running out.

In reply to We don't need Saudi oil. We… by gwar5

Vote up!
11
Vote down!
1
JustPrintMoreDuh Thu, 02/15/2018 - 19:10 Permalink

False Flag WW3 justification in 3,2,1 ...

Vote up!
5
Vote down!
0
44magnum Thu, 02/15/2018 - 19:11 Permalink

They better hurry up and get the war going.

Vote up!
0
Vote down!
4
UpTo11 Thu, 02/15/2018 - 19:12 Permalink

Japan trades crude oil in Yen. Blah Blah Blah...Freak Out!!

Vote up!
4
Vote down!
0
Seasmoke Thu, 02/15/2018 - 19:16 Permalink

38 days and counting. .... Tick. Tock.

Vote up!
0
Vote down!
0
radio man Seasmoke Thu, 02/15/2018 - 19:34 Permalink

I suspect there will be considerable lag time before many climb aboard. Abandoning the status quo will be considered adventurous in the short term.

In reply to 38 days and counting. … by Seasmoke

Vote up!
0
Vote down!
0
Kayman Seasmoke Thu, 02/15/2018 - 19:51 Permalink

The Yuan is pegged to the U.S. dollar.

Tell me when the little Chinese yuan stops holding the U.S. dollars hand.

Otherwise trading in Yuan is backdoor trading in USD.

In reply to 38 days and counting. … by Seasmoke

Vote up!
0
Vote down!
6
Quantify Thu, 02/15/2018 - 19:17 Permalink

China has signed its own death warrant.

Vote up!
10
Vote down!
0
D.T.Barnum Quantify Thu, 02/15/2018 - 19:19 Permalink

Umm, Russia, NK, Iran, Pakistan, Turkey, will all side with China in a WW scenario. Maybe they signed all our death warrants.

In reply to China has signed its own… by Quantify

Vote up!
0
Vote down!
0
The_Juggernaut D.T.Barnum Thu, 02/15/2018 - 19:35 Permalink

At the risk getting glassed over? Doubt it.

In reply to Umm, Russia, NK, Iran,… by D.T.Barnum

Vote up!
0
Vote down!
0
Kayman D.T.Barnum Thu, 02/15/2018 - 19:53 Permalink

Not one of those 6 countries have anything in common, aside from enmity to the US.

In reply to Umm, Russia, NK, Iran,… by D.T.Barnum

Vote up!
0
Vote down!
1
daggerhashimoto Thu, 02/15/2018 - 19:17 Permalink

bitcoin will fuck both up

Vote up!
1
Vote down!
1
batalyst Thu, 02/15/2018 - 19:17 Permalink

How many times has the phrase 'end of the petrodollar' or something similar been in a ZH headline ? Worse than Gartman.

Vote up!
0
Vote down!
0
Winston Churchill batalyst Thu, 02/15/2018 - 19:38 Permalink

So you'd prefer the historical norm. a world(known)war to bring it about.

Not that we might not see one anyway.but at least they're trying the peaceful way.

If fact the American penchant for never taking responsibility makes WWIII inevitable IMO.

I think the other minor detail yet to be released will be,its a delivery only futures contract,no speculators.

In reply to How many times has the… by batalyst

Vote up!
2
Vote down!
0
D.T.Barnum Thu, 02/15/2018 - 19:17 Permalink

Isn't this around the same time the FED is supposed to hike rates? Sounds like a dangerous recipe.

Vote up!
0
Vote down!
0
Kayman D.T.Barnum Thu, 02/15/2018 - 19:55 Permalink

Hiking rates in a growing economy is something possible now. Possible.

But hiking rates is going to fuck up China, Europe and Japan.

In reply to Isn't this around the same… by D.T.Barnum

Vote up!
1
Vote down!
2
are we there yet Thu, 02/15/2018 - 19:17 Permalink

If you can get people to say something is going to happen long enough, over an over, it may happen. Just remember that as dirty as our fiat laundry is, every other large economy is even more dirty with its fiat laundry.

Vote up!
0
Vote down!
0
Winston Churchill are we there yet Thu, 02/15/2018 - 19:42 Permalink

When the laundry is on fire does it matter which shirt is cleanest ?

All fiat is going to zero in the reset,that why both China and Russia are buying phyz.

In reply to If you can get people to say… by are we there yet

Vote up!
3
Vote down!
0
HoyeruNew Thu, 02/15/2018 - 19:17 Permalink

no wonder USA is sending a lot of solders to Asia to counter China's "threat". China is a "threat" all right.

Vote up!
0
Vote down!
0
max_is_leering HoyeruNew Thu, 02/15/2018 - 19:29 Permalink

are all those tranny soldiers wearing pumps or stiletto heels?... and hot pink pussy hats to match the camo ensemble?

In reply to no wonder USA is sending a… by HoyeruNew

Vote up!
0
Vote down!
0
loveyajimbo HoyeruNew Thu, 02/15/2018 - 19:41 Permalink

Our own Deep State and MIC is far more of a "threat".

In reply to no wonder USA is sending a… by HoyeruNew

Vote up!
0
Vote down!
0
Winston Churchill HoyeruNew Thu, 02/15/2018 - 19:44 Permalink

Plumbers ?

Soldiers.

In reply to no wonder USA is sending a… by HoyeruNew

Vote up!
0
Vote down!
1
malMono Thu, 02/15/2018 - 19:18 Permalink

Sign me up

Vote up!
1
Vote down!
0
saldulilem Thu, 02/15/2018 - 19:19 Permalink

Yuan currency to rule them all

Vote up!
0
Vote down!
0
D.T.Barnum saldulilem Thu, 02/15/2018 - 19:23 Permalink

... and with a shoelace blind them.

In reply to Yuan currency to rule them… by saldulilem

Vote up!
0
Vote down!
0
VisceralFat1 Thu, 02/15/2018 - 19:20 Permalink

so

now we have a date when WW3 begins

Vote up!
0
Vote down!
0
saldulilem Thu, 02/15/2018 - 19:21 Permalink

Yuan this?

Vote up!
0
Vote down!
0
Brazen Heist Thu, 02/15/2018 - 19:22 Permalink

I endorse this message

Vote up!
0
Vote down!
1
J Mahoney Thu, 02/15/2018 - 19:23 Permalink

People don't trust the FED and USD but are more willing to trust the economical data from Communist China -- very telling. If they become the world currency, wonder how long that lasts until people catch on

Vote up!
0
Vote down!
0
HoyeruNew J Mahoney Thu, 02/15/2018 - 19:30 Permalink

please, everyone who buys food/gas/medications/etc in USA knows the real inflation in USA is at least 15-20%. USA's economic data is total fake.

In reply to People don't trust the FED… by J Mahoney

Vote up!
0
Vote down!
0
Mr_Potatohead Thu, 02/15/2018 - 19:24 Permalink

The problem for oil producers is getting paid in terms of something that maintains value for the finite resource they are selling. There are lots of ways to do this - maybe even a reliable cryptocurrency. Here's a flashback to 1999 that explains the dilemma --> http://www.usagold.com/halloffame.html#anchor318280

If you were in charge of the Saudi oil fields and knew that your peak production had already come and gone, what would you do? An IPO for the national oil company might be a good idea. Rounding up relatives and taking their assets also might be attractive. Many other things probably make sense too, but continuing to accept dollars and dollar-denominated debt as an asset probably is near the bottom of the list.

Vote up!
0
Vote down!
2
J Mahoney Thu, 02/15/2018 - 19:25 Permalink

So they are a "developing country deserving of UN directed massive postage rate discounts--the lies and cheating started 10 years ago--how could the world be so stupid--China isn't happy until they are in complete control

Vote up!
0
Vote down!
0
HoyeruNew J Mahoney Thu, 02/15/2018 - 19:31 Permalink

it's USA who isn't happy they are losing control.

In reply to So they are a "developing… by J Mahoney

Vote up!
4
Vote down!
0
johand inmywallet Thu, 02/15/2018 - 19:25 Permalink

We now know the approximate start of the bombing of North Korea.

Vote up!
1
Vote down!
0
Ricki13th Thu, 02/15/2018 - 19:30 Permalink

Wow everything is moving so fast. March 26 is around the corner.

Vote up!
0
Vote down!
0
Ricki13th Thu, 02/15/2018 - 19:30 Permalink

Wow everything is moving so fast. March 26 is around the corner.

Vote up!
0
Vote down!
0
Mustahattu Thu, 02/15/2018 - 19:32 Permalink

Shoulda done an ICO and crypto instead of the same ol'.

Vote up!
0
Vote down!
0
Able Ape Thu, 02/15/2018 - 19:49 Permalink

So, this is how it ends? Tough Titty for the good old USA. All those trillions spent and we end up with a banana republic...Cool...

Vote up!
0
Vote down!
0
Conscious Reviver Thu, 02/15/2018 - 19:55 Permalink

China the economic powerhouse, with Russia riding shotgun is gonna save us all. Awesome.

Vote up!
0
Vote down!
0
Stormtrooper Thu, 02/15/2018 - 19:55 Permalink

Great! We've been waiting for a new casino. People are losing faith in their odds in the old ones.

## User login

Username
Password

- Create new account
- Reset your password

## New Comments

Loading...

## Today's Top Stories

Loading...

## Contact Information

Tips: tips@zerohedge.com

General: info@zerohedge.com

Legal: legal@zerohedge.com

Advertising: ads@zerohedge.com

Abuse/Complaints: abuse@zerohedge.com

Advertise With Us

## Suggested Reading

Make sure to read our "How To [Read/Tip Off] Zero Hedge Without Attracting The Interest Of [Human Resources/The Treasury/Black Helicopters]" Guide

It would be very wise of you to study our disclaimer, our privacy policy and our (non)policy on conflicts / full disclosure. Here's our Cookie Policy.

How to report offensive comments

Notice on Racial Discrimination.