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How China Is About to Shake Up the Oil Futures Market

By Feux Follets following x   2018 Mar 9, 6:00am 389 views   4 comments   watch   sfw   quote     share    


China, the world’s biggest oil buyer, is opening a domestic market to trade futures contracts. It’s been planning one for years, only to encounter delays.

The Shanghai International Energy Exchange, a unit of Shanghai Futures Exchange, will be known by the acronym INE and will allow Chinese buyers to lock in oil prices and pay in local currency.

Also, foreign traders will be allowed to invest -- a first for China’s commodities markets -- because the exchange is registered in Shanghai’s free trade zone.

There are implications for the U.S. dollar’s well-established role as the global currency of the oil market.

1. When will trading begin?

From March 26. Daytime trading hours will be from 9 a.m. to 11:30 a.m. and 1:30 p.m. to 3 p.m. local time and at night from 9 p.m. through 2:30 a.m.

2. Why is this important for China?

Futures trading would wrest some control over pricing from the main international benchmarks, which are based on dollars. Denominating oil contracts in yuan would promote the use of China’s currency in global trade, one of the country’s key long-term goals

3. How do oil futures work?

Futures contracts fix prices today for delivery at a later date. Consumers use them to protect against higher prices down the line; speculators use them to bet on where prices are headed. In 2017, oil futures contracts in New York and London outstripped physical trading by a factor of 23.

4. Why didn’t China begin trading futures until now?

Lower crude prices have played a part. Chinese oil futures were proposed in 2012 following spikes above $100 a barrel, but prices in 2017 have averaged little more than $50. There’s also concern over volatility. China introduced domestic crude futures in 1993, only to stop a year later because of volatility.

5. What’s China’s track record in commodities?

Nickel was the last major commodity to be listed there in 2015; within six weeks, trading in Shanghai surpassed benchmark futures on the London Metal Exchange, or LME. In China, speculators play a far greater role, boosting trading volumes but making markets susceptible to volatility.

6. Will foreigners buy Chinese oil futures?

That remains to be seen. Overseas oil producers and traders would need to swallow not just China’s penchant for occasional market interventions but also its capital controls. Restrictions on moving money in and out of the country have been tightened in the past two years after a shock devaluation of the yuan in 2015 prompted a surge in money leaving the mainland.

7. Could the yuan challenge the dollar’s dominance in oil?

Not any time soon, since paying for oil in dollars is an entrenched practice, according to some analysts. Shady Shaher, head of macro strategy at Dubai-based lender Emirates NBD PJSC, says it makes sense in the long run to look at transactions in yuan because China is a key market, but it will take years.

Bloomberg Gadfly columnist David Fickling argues that China doesn’t have “nearly the influence in the oil market needed to carry out such a coup.” On the other hand, paying in yuan for oil could become part of President Xi Jinping’s “One Belt, One Road” initiative to develop ties across Eurasia, including the Middle East.

Chinese participation in Saudi Aramco’s planned initial public offering could help sway Saudi opinion toward accepting yuan, which is used in only about 2 percent of global payments.

More: https://www.bloomberg.com/news/articles/2018-03-08/how-china-is-about-to-shake-up-the-oil-futures-market-quicktake

#Oil #Futures #Investing

1   CBOEtrader   ignore (2)   2018 Mar 9, 6:09am   ↑ like (0)   ↓ dislike (0)   quote        

Potentially big news.

How can this not challenge the petro $$ and ultimately hurt our bond market?

Alas, the collapse of the petro $ is (and has been) inevitable.
2   Tenpoundbass   ignore (11)   2018 Mar 9, 6:25am   ↑ like (0)   ↓ dislike (0)   quote        

Oil is still in a bubble, Oil is only worth $30 a barrel.
3   BlueSardine   ignore (1)   2018 Mar 9, 6:42am   ↑ like (0)   ↓ dislike (0)   quote        

None of the points listed detail a United States counter strategy. Why is this?
4   Strategist   ignore (1)   2018 Mar 9, 7:49am   ↑ like (0)   ↓ dislike (0)   quote        

BlueSardine says
None of the points listed detail a United States counter strategy. Why is this?


It makes no difference to us. Oil is traded all over the world, and will now be traded in one more arena.
We are expected to become the world's largest producer of oil this year, and our use of oil will decline over the years.




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