China aims for dollar-free oil trade
Tuesday, October 3, 2017 at 09:02PM
Gold Prices

 

Yuan-denominated futures would allow crude exporters to dodge US sanctions

DAMON EVANS, Contributing writer

DENPASAR, Indonesia China is expected shortly to launch a crude oil futures contract priced in yuan and convertible into gold in what analysts say could be a game changer for the industry.

The contract could become the most important Asia-based crude oil benchmark, given that China is the world's biggest oil importer. Crude oil is usually priced in relation to Brent or West Texas Intermediate futures, both denominated in U.S. dollars.

China's move will allow exporters such as Russia and Iran to circumvent U.S. sanctions by trading in yuan. To further entice trade, China says the yuan will be fully convertible into gold on exchanges in Shanghai and Hong Kong.

"The rules of the global oil game may begin to change enormously," said Luke Gromen, founder of U.S.-based macroeconomic research company FFTT.

The Shanghai International Energy Exchange has started to train potential users and is carrying out systems tests following substantial preparations in June and July. This will be China's first commodities futures contract open to foreign companies such as investment funds, trading houses and petroleum companies.

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The possibilty of rate hikes and the central banks unwinding weighs on gold prices - for now.

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