The launch of the yuan oil futures contract will be a wake-up call for traders and investors who haven't been paying attention to Chinese plans to create the so-called petroyuan and shift oil trade out of petrodollars, Adam Levinson, managing partner and chief investment officer at hedge fund manager Graticule Asset Management Asia (GAMA), said in October past year.
The country is considering releasing its own oil contracts to have more weight in the oil markets.
Prices were also said to have been compromised by the restart of the Forties pipeline in the North Sea, following an outage the previous day that caused prices to climb higher; additionally, Thursday's market activity was influenced by an announcement from Iran that it is looking to boost production over the next four years. Oil sold in Asia is now priced mainly against Brent, as well as against the Dubai and Oman benchmarks. China's crude contract offers companies in the real economy a hedging tool which better reflects market conditions in Asia, said Wu Jian, a senior researcher with the Bank of Communications. The problem is that controls make the yuan tough to use as well.
Bloomberg quoted one of the critics, Michal Meidan, an analyst at industry consultant Energy Aspects Ltd as saying that the move was just a first small step towards China gaining the status of an active price setter in oil.
An official at the INE told S&P Global Platts today that the oil futures contract would be launched on March 26, after the exchange had recently received the approval from China's State Council-the final hurdle to the launch of the contract.
But analysts said it could take time before China's new oil futures challenge the dominance in oil trading of the two current global benchmarks, or the prominence of the USA dollar in the global financial system.
However, if Helima Croft, head of global commodity strategy at RBC Capital Markets, proves correct, then there's still a chance the global market could swing the other way and suffer the equally undesirable outcome of overtightening, due to the worsening economy of one of Latin America's biggest oil producers.