• 20 mins ELN Attacks Another Colombian Pipeline As Ceasefire Ceases
  • 5 hours Shell Buys 43.8% Stake In Silicon Ranch Solar
  • 9 hours Saudis To Award Nuclear Power Contracts In December
  • 12 hours Shell Approves Its First North Sea Oil Project In Six Years
  • 13 hours China Unlikely To Maintain Record Oil Product Exports
  • 14 hours Australia Solar Power Additions Hit Record In 2017
  • 15 hours Morocco Prepares $4.6B Gas Project Tender
  • 18 hours Iranian Oil Tanker Sinks After Second Explosion
  • 3 days Russia To Discuss Possible Exit From OPEC Deal
  • 3 days Iranian Oil Tanker Drifts Into Japanese Waters As Fires Rage On
  • 3 days Kenya Cuts Share Of Oil Revenues To Local Communities
  • 3 days IEA: $65-70 Oil Could Cause Surge In U.S. Shale Production
  • 4 days Russia’s Lukoil May Sell 20% In Oil Trader Litasco
  • 4 days Falling Chinese Oil Imports Weigh On Prices
  • 4 days Shell Considers Buying Dutch Green Energy Supplier
  • 4 days Wind And Solar Prices Continue To Fall
  • 4 days Residents Flee After Nigeria Gas Company Pipeline Explodes
  • 4 days Venezuela To Pre-Mine Petro For Release In 6-Weeks
  • 5 days Trump Says U.S. “Could Conceivably” Rejoin Paris Climate Accord
  • 5 days Saudis Shortlist New York, London, Hong Kong For Aramco IPO
  • 5 days Rigid EU Rules Makes ICE Move 245 Oil Futures Contracts To U.S.
  • 5 days Norway Reports Record Gas Sales To Europe In 2017
  • 5 days Trump’s Plan Makes 65 Billion BOE Available For Drilling
  • 5 days PetroChina’s Biggest Refinery Doubles Russian Pipeline Oil Intake
  • 5 days NYC Sues Five Oil Majors For Contributing To Climate Change
  • 6 days Saudi Aramco Looks To Secure $6B In Cheap Loans Before IPO
  • 6 days Shell Sells Stake In Iraqi Oil Field To Japan’s Itochu
  • 6 days Iranian Oil Tanker Explodes, Could Continue To Burn For A Month
  • 6 days Florida Gets An Oil Drilling Pass
  • 6 days Oil Prices Rise After API Reports Staggering Crude Oil Draw
  • 6 days Tesla Begins Mass Production Of Solar Shingles
  • 7 days EIA Boosts World Oil Demand Forecast For 2018 By 100,000 Bpd
  • 7 days Businessman Seeks Sale Of $5.2B Stake In Kazakhstan Oil Field
  • 7 days Exxon Accuses California Of Climate Change Hypocrisy
  • 7 days Norway’s Recovering Oil Industry Resumes Hiring
  • 7 days $2.3 Million Seized Following Singapore Oil Heist
  • 7 days China Nears 2016 Carbon Emissions Target
  • 7 days Oil Companies Respond Slow To New U.S. Lease Plan
  • 7 days Maduro To Issue First 100 Million Petros Despite Skeptics
  • 8 days Iraq Bans Kurdish Firm From Operating Kirkuk Oil Fields
Alt Text

Is $70 The Ceiling For Oil Prices?

Oil has rallied far higher…

Alt Text

The 5 Most Popular Energy Stories Of 2017

2017 was an eventful year…

Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing for news outlets such as iNVEZZ and…

More Info

China Takes Aim At The Petrodollar

Dollar

China continues to pursue its ambitious plan to make its currency—the yuan—more international.

The world’s top crude oil importer and key oil demand growth driver is now determined to get as many oil exporters as possible on board with accepting yuan payments for their oil.  

China is now trying to persuade OPEC’s kingpin and biggest exporter, Saudi Arabia, to start accepting yuan for its crude oil. If the Chinese succeed, other oil exporters could follow suit and abandon the U.S. dollar as the world’s reserve currency. Pulling oil trade out of U.S. dollars would lead to decreased demand for U.S. securities across the board, Carl Weinberg, chief economist and managing director at High Frequency Economics, tells CNBC. Weinberg believes that the Chinese will “compel” the Saudis to accept to trade oil in yuan.

Other analysts warn that the true test of China’s push for a yuan oil trade will be if the Saudis are willing to risk the anger of the U.S. by accepting yuan payments.

The other option isn’t much better for the Saudis—if they continue to resist trading in yuan, they risk losing further market share of the world’s top crude oil importer and possibly the snub of Chinese investors for the much-hyped IPO of Saudi Aramco next year. Chinese sovereign wealth funds and major state companies have deeper pockets than major institutional investors in the West. For China, an Aramco investment could increase Beijing’s bargaining power to convince Aramco to accept yuan payments. Although there’s no indication yet that Aramco would want yuan for its oil, the Saudis say they’re willing to consider issuing yuan-denominated bonds, in what could be a break from the practice to issue debt only in U.S. dollars.

Related:The Permian Boom Is Coming To An End

The Chinese scored a success for their currency last year when the International Monetary Fund (IMF) included the yuan in its Special Drawing Right (SDR) basket—an international reserve asset, created by the IMF in 1969 to supplement the existing official reserves of member countries. The yuan joined the U.S. dollar, the euro, the yen, and the British pound sterling in the basket as the IMF recognized “an important milestone in the integration of the Chinese economy into the global financial system.”

China is also reportedly preparing to launch a crude oil futures contract denominated in Chinese yuan and convertible into gold, potentially creating the most important Asian oil benchmark and allowing oil exporters to bypass U.S.-dollar denominated benchmarks by trading in yuan.

The Chinese are on an aggressive path to have not only Russia on board with yuan settlements for oil trade.

“I believe that yuan pricing of oil is coming and as soon as the Saudis move to accept it—as the Chinese will compel them to do—then the rest of the oil market will move along with them,” Weinberg told CNBC this week.

“Moving oil trade out of dollars into yuan will take right now between $600 billion and $800 billion worth of transactions out of the dollar,” the economist noted, adding that the yuan oil trade would also mean stronger demand for Chinese securities, goods, and services.

“A rising China is eyeing the benefits of having its own currency play a larger role and to supplant the USD’s role in global trade,” John J Hardy, head of FX strategy at Saxo Bank, said in the bank’s quarterly outlook earlier this month.

Related: OPEC To Take Drastic Action Despite Shale Slowdown

The initial focus of that trade is oil trade, Hardy said.

“And if China, having built massive gold reserves in recent years, allows any trade partner to exchange their yuan revenues from oil directly into gold, it would likely vastly reduce the interest in holding foreign exchange reserves in US dollars, increasing the interest in holding gold and yuan,” the analyst noted.

“Important oil exporters Russia and Iran, long suffering at the hands of U.S. financial and trade sanctions, will be happy participants in this scheme and could provide critical mass,” said Hardy. “The bigger test will be whether traditional US allies, such as Saudi Arabia, would be willing to risk the ire and financial might of the U.S. by agreeing to receive yuan for oil. There are certainly risks to the approach, though the wind is at China’s back.”

 By Tsvetana Paraskova for Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment
  • Fredrik Vogel on October 15 2017 said:
    What could be the effect on oil prices in USD (all other things being equal), of a large share of the oil demand being traded in yuan instead of dollars?
  • Paul on October 15 2017 said:
    "scheme",. "ire and financial might of the U S" the game is over, we've been check mated.
  • Mumia on October 26 2017 said:
    What history really shows is that today's empire is tomorrow's ashes; that nothing lasts forever.

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News