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Analysis - New oil contracts will not end the era of "petrodollar"

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rocky
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Analysis - New oil contracts will not end the era of "petrodollar"

Post by rocky on Sat 07 Apr 2018, 9:57 am

Analysis - New oil contracts will not end the era of "petrodollar"






2018/04/07 16:24


(Encyclopedia of this day for news ) - Edit - Sally Ismail:

Mubasher: Traditionally, any country with an influential power in the oil sector must be a major producer of crude.

The Economist magazine published an analysis confirming that although China is the biggest importer of crude but still wants to become a major player in the market.

On March 26, China launched its first oil futures contracts denominated in its domestic currency in an effort to gain more influence within the global market.

Some believe that if Beijing succeeds, the yuan may replace the dollar in oil trading, yet so far it is all "illusions".

In a previous attempt, China failed to deliver oil futures during the early 1990s, due to unstable pricing.

But this time, organizers set up a systematic approach to avoid speculators in Chinese markets by making oil storage too expensive.

Trading volumes were minimal in the first few days of the formal launch of contracts, representing less than a decade of similar contracts on the New York Stock Exchange and the London Stock Exchange.

But the beginning of China's future yuan futures was good if not modest.

China's bid to break into the global oil market is twofold: its main aim is to help its companies hedge against volatility as refiners and Chinese traders struggled to manage currency risk as a result of capital controls.

Therefore, the provision of internal forward contracts that allow companies to link to the future yuan oil futures market is attractive, said Michal Medan of research firm Aspex.

The most ambitious picture as another goal for Beijing is that China hopes to establish a benchmark for oil pricing, as opposed to the standard Brent crude in Europe and the US Nymex, which reflects its demand and supply.

To achieve this, China should attract participation from abroad. For the first time in China's commodity market, the contract, which is being put on the Shanghai International Energy Exchange, has been made available to foreigners.

Trading in yuan-denominated oil futures continued until 2:30 am Chinese time in order to overlap trading times in the US and Europe.

The world's largest commodity traders, Glencore and Trafigura, took part in the Chinese futures contract, which began for the first time.

However, the same restrictions that make it difficult for domestic companies to trade abroad will prevent foreigners from entering the China market.

In order to gain access to the Chinese market, they must open private internal bank accounts and can not use their profits for any other investment in China.

A group of oil producers may agree, theoretically, those who are subject to US sanctions.

For Iran, Russia and Venezuela, oil trading in yuan could deprive those countries of dollar profits and help them keep away from US banks.

As long as China separates its financial system from the rest of the world, talking about petrooyuan to replace the petrodollar will be premature.


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