‘Single biggest change in capital markets, maybe of all time’: China launches oil futures that ...

From The Financial Post



NEW YORK — China’s launch on Monday of its crude futures exchange will improve the clout of the yuan in financial markets and could threaten the international primacy of the dollar, argues a new report by Hayden Briscoe, APAC head of fixed income at UBS Asset Management.

“This is the single biggest change in capital markets, maybe of all time,” Briscoe said in a follow-up telephone interview.


The launch of the oil futures denominated in China’s renminbi currency, also known as the yuan, is China’s first commodity derivative open to foreign investors. This marked the culmination of a decade-long push by the Shanghai Futures Exchange (ShFE) to give the world’s largest energy consumer more power in pricing crude sold to Asia.

[Mods - Headline exceeds allowable character limit]

[COMMENT]

Not a whole lot of mention is being made of this in the US media - probably because it isn't as "sexy" as the "Stormy Daniels Story" is, but the fact that a major prop for the US dollar is the fact that petroleum contracts are denominated in US Dollars and that means that people have to buy US Dollars if they want to buy oil.

China is the world's largest oil consumer and if the Chinese government decides that it is going to place a significant portion (like, for example, ALL) of its oil contracts through the ShFE then that is going to have a real impact on the market for US Dollars.

IF that causes the selling price for US Dollars to drop THEN that means that anything purchased with US Dollars will end up costing more so, effectively, the Chinese government has preempted the US tariffs (and the ability of the US government to control the effects of them) AND there isn't anything that the US government can do about it.

Meh, it's a double edged sword for China... If the Yuan improves... Chinese product prices go up and other countries can compete easier.... it's why they have been accused of artificially reducing the value of their currency before.

TU Curmudgeon said:

From The Financial Post

‘Single biggest change in capital markets, maybe of all time’:
China launches oil futures that could topple dollar
​

NEW YORK — China’s launch on Monday of its crude futures exchange will improve the clout of the yuan in financial markets and could threaten the international primacy of the dollar, argues a new report by Hayden Briscoe, APAC head of fixed income at UBS Asset Management.

“This is the single biggest change in capital markets, maybe of all time,” Briscoe said in a follow-up telephone interview.


The launch of the oil futures denominated in China’s renminbi currency, also known as the yuan, is China’s first commodity derivative open to foreign investors. This marked the culmination of a decade-long push by the Shanghai Futures Exchange (ShFE) to give the world’s largest energy consumer more power in pricing crude sold to Asia.

[Mods - Headline exceeds allowable character limit]

[COMMENT]

Not a whole lot of mention is being made of this in the US media - probably because it isn't as "sexy" as the "Stormy Daniels Story" is, but the fact that a major prop for the US dollar is the fact that petroleum contracts are denominated in US Dollars and that means that people have to buy US Dollars if they want to buy oil.

China is the world's largest oil consumer and if the Chinese government decides that it is going to place a significant portion (like, for example, ALL) of its oil contracts through the ShFE then that is going to have a real impact on the market for US Dollars.

IF that causes the selling price for US Dollars to drop THEN that means that anything purchased with US Dollars will end up costing more so, effectively, the Chinese government has preempted the US tariffs (and the ability of the US government to control the effects of them) AND there isn't anything that the US government can do about it.

Click to expand...

On the other hand China is only going to have the ability to manipulate the value of the Yuan with its oil suppliers. Suddenly there is a ton of Yuan on the market forcing down the value of the Yuan.

It’s an interesting test of free market vs mercantilism.

celticwar17 said:

Meh, it's a double edged sword for China... If the Yuan improves... Chinese product prices go up and other countries can compete easier.... it's why they have been accused of artificially reducing the value of their currency before.

Click to expand...

Accused? I think it's common knowledge that China is the only major country that internally regulates currency value. The regime risks its existence in losing that control even partially.

TU Curmudgeon said:

From The Financial Post

‘Single biggest change in capital markets, maybe of all time’:
China launches oil futures that could topple dollar
​

NEW YORK — China’s launch on Monday of its crude futures exchange will improve the clout of the yuan in financial markets and could threaten the international primacy of the dollar, argues a new report by Hayden Briscoe, APAC head of fixed income at UBS Asset Management.

“This is the single biggest change in capital markets, maybe of all time,” Briscoe said in a follow-up telephone interview.


The launch of the oil futures denominated in China’s renminbi currency, also known as the yuan, is China’s first commodity derivative open to foreign investors. This marked the culmination of a decade-long push by the Shanghai Futures Exchange (ShFE) to give the world’s largest energy consumer more power in pricing crude sold to Asia.

[Mods - Headline exceeds allowable character limit]

[COMMENT]

Not a whole lot of mention is being made of this in the US media - probably because it isn't as "sexy" as the "Stormy Daniels Story" is, but the fact that a major prop for the US dollar is the fact that petroleum contracts are denominated in US Dollars and that means that people have to buy US Dollars if they want to buy oil.

China is the world's largest oil consumer and if the Chinese government decides that it is going to place a significant portion (like, for example, ALL) of its oil contracts through the ShFE then that is going to have a real impact on the market for US Dollars.

IF that causes the selling price for US Dollars to drop THEN that means that anything purchased with US Dollars will end up costing more so, effectively, the Chinese government has preempted the US tariffs (and the ability of the US government to control the effects of them) AND there isn't anything that the US government can do about it.

Click to expand...

Hm. Could be something here. I think I remember that Saddam Hussein had started accepting Euros for oil, not long before he was invaded and lynched. Speculation that Trump might be lining up to spend China into oblivion like Reagan did to the Evil Empire might be about to become moot.

ecofarm said:

Accused? I think it's common knowledge that China is the only major country that internally regulates currency value. The regime risks its existence in losing that control even partially.

Click to expand...

And, there's the bug in the bean. However, it could give China a level of legitimate cover for devaluation of the yuan if it occurs externally, but I believe the opposite is more likely.

ecofarm said:

Accused? I think it's common knowledge that China is the only major country that internally regulates currency value. The regime risks its existence in losing that control even partially.

Click to expand...

It is going to be interesting to see how this one plays out.

I rather suspect that the Chinese have studied the potential ramifications and possible counters to any adverse effects one heck of a lot more thoroughly than either you or I have done. I'm POSITIVE that they have studied the potential ramifications and possible counters to any adverse effects one heck of a lot more thoroughly than Mr. Trump (or "Team Trump") has done.

TU Curmudgeon said:

From The Financial Post

‘Single biggest change in capital markets, maybe of all time’:
China launches oil futures that could topple dollar
​

NEW YORK — China’s launch on Monday of its crude futures exchange will improve the clout of the yuan in financial markets and could threaten the international primacy of the dollar, argues a new report by Hayden Briscoe, APAC head of fixed income at UBS Asset Management.

“This is the single biggest change in capital markets, maybe of all time,” Briscoe said in a follow-up telephone interview.


The launch of the oil futures denominated in China’s renminbi currency, also known as the yuan, is China’s first commodity derivative open to foreign investors. This marked the culmination of a decade-long push by the Shanghai Futures Exchange (ShFE) to give the world’s largest energy consumer more power in pricing crude sold to Asia.

[COMMENT]

Not a whole lot of mention is being made of this in the US media - probably because it isn't as "sexy" as the "Stormy Daniels Story" is, but the fact that a major prop for the US dollar is the fact that petroleum contracts are denominated in US Dollars and that means that people have to buy US Dollars if they want to buy oil.

China is the world's largest oil consumer and if the Chinese government decides that it is going to place a significant portion (like, for example, ALL) of its oil contracts through the ShFE then that is going to have a real impact on the market for US Dollars.

IF that causes the selling price for US Dollars to drop THEN that means that anything purchased with US Dollars will end up costing more so, effectively, the Chinese government has preempted the US tariffs (and the ability of the US government to control the effects of them) AND there isn't anything that the US government can do about it.

Click to expand...

I would think that Nixon ending the gold standard had the biggest change of all time in capital markets...and brought about the petrodollar. The markets haven't been the same since.

US dollar is the reserve currency of the petrodollar.

https://www.investopedia.com/articles/forex/072915/how-petrodollars-affect-us-dollar.asp


China doesn't have oil fields and has to export all of it oil, making it the largest 'purchaser' of oil. The US is still the largest consumer of oil.


So will opening Chinese oil futures to foreign investors allow oil purchasers avoid paying for oil in petrodollars? Not sure how the futures market works.

Moot said:

I would think that Nixon ending the gold standard had the biggest change of all time in capital markets...and brought about the petrodollar. The markets haven't been the same since.

Click to expand...

Most of the world had been "off the gold standard" for some time before Mr. Nixon officially took the US off it.

There isn't any actual think as a "Petrodollar" - regardless of how many time the media reports on it. In fact, a "Petrodollar" is a NOTIONAL "currency" which is indicative of the amount of money that a country earns by selling oil. Afghanistan, for example, doesn't have a single "Petrodollar".

However, you are correct, the markets haven't been the same since Mr. Nixon officially took the US off the Gold standard.

Moot said:

US dollar is the reserve currency of the petrodollar.

Click to expand...

Being the "reserve currency" for an imaginary thing doesn't sound all that much of a big deal, does it.

"Petrodollars" are measured in US Dollars and that's it. With the new Chinese exchange, there will now be "Petrodollars" and "Petroyuan".

Moot said:

China doesn't have oil fields and has to export all of it oil, making it the largest 'purchaser' of oil. The US is still the largest consumer of oil.

Click to expand...

I understand that the "export" is a finger fumble.

The US doesn't "earn" (or "create") a single "Petrodollar" by consuming domestically produced oil. On the international market, China is the big market.

Moot said:

So will opening Chinese oil futures to foreign investors allow oil purchasers avoid paying for oil in petrodollars?

Click to expand...

Nope, but it will allow oil purchasers to avoid paying for oil in US Dollars.

Moot said:

Not sure how the futures market works.

Click to expand...

Essentially it works on the basis of contracts that (in effect) say "On "Day A", "Person B" will sell to "Person C" "Amount D" of "Commodity E" for "Price F". At the time the contract is entered into:

1. "Person B" does not own any "Commodity E"; and
2. "Person C" does not have the money to pay "Price F", while
3. "Commodity E" may not even exist.

"Person B" is hoping/predicting/guessing that the actual current price for "Commodity E" as of "Day A" is lower than "Price F" so that they can buy enough of it to fulfill the contract and keep the difference.

"Person C" is hoping/predicting/guessing that the actual current price for "Commodity E" as of "Day A" is higher than "Price F" so that they can sell what they bought and keep the difference.


As you can see, it's all incredibly simple.