China Launches Effort To Wrestle Control Of Crude Oil Pricing Away From US Dollar

REUTERS/Mark Schiefelbei

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Michael Bastasch Contributor
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China, the world’s largest oil consuming country, started its own yuan-based oil futures trading contract on Monday in an effort to wrestle control from the U.S. and Europe over crude pricing.

Energy analysts said the first-ever Chinese futures contract on the Shanghai International Energy Exchange would bring transparency to the country’s oil market. China’s demand for oil will be on full display with international trading.

But China’s broader goal is to have more power in pricing oil sold to Asia. China hopes its Shanghai futures contract will rival, and take some power from, price-setting exchanges in the U.S. and Europe, according to reports.

Chinese officials hope their non-U.S. dollar-denominated trading contract “will eventually give the country an oil benchmark to rival those in the U.S. and Europe,” The Wall Street Journal reported.

According to the Financial Times, China wants to take clout “away from US dollar-based international benchmarks, such as the West Texas Intermediate and Brent markers, so that prices reflect as closely as possible the crudes processed by Chinese refineries.”

Chinese oil consumption is expected to top 12 million barrels per day in 2018, according to the state-owned China National Petroleum Corporation, and demand for crude is only expected to grow in the coming decades.

As China’s economy grows and access to transportation grows, so will its demand for petroleum products. The International Energy Agency expects China’s oil demand to hit 15.5 million barrels a day.

In the face of ever-growing demand, China is looking for more power in oil pricing. Currently, the world’s most prominent oil benchmarks are the U.S.-based West Texas Intermediate and the London-based Brent.

The futures contract opened up 6 percent, ending the day slightly down around 430 yuan, or about $68, per barrel.

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