China kicked off its first ever crude futures on Monday. According to observers, the country's yuan-denominated oil contracts could emerge as a brand new benchmark, providing Beijing with extra pricing powers and help it internationalize the yuan. This is especially important amid the ongoing tariff war between the US and China.
In strict accordance with its initial plan, China launched yuan-denominated oil futures on the Shanghai International Energy Exchange on March 26, thus challenging the dominance of the Brent and West Texas Intermediate (WTI) benchmarks.
Ren Wei of South China Morning Post highlighted that China's recent move became possible due to the fact that the country had emerged as the largest oil importer in 2017, surpassing the United States.
According to the US Energy Information Administration (EIA), in 2017 China imported 8.4 million barrels of crude per day, while the US imported 7.9 million barrels.
The journalist explained that Beijing is interested in kicking off its own benchmark, given China's growing dependence on crude. The move will provide the country with new pricing powers, boost its national energy security and help promote the Chinese currency globally.
Wei cited Shao Yu, chief economist at the Chinese securities company Orient Securities, who stressed that "the contracts, denominated in yuan, can technically help China gain pricing power and internationalize the yuan, if a mature market with strong trading activities by global investors is set up."
The media outlet added that for their part, Brent and WTI September contracts were traded at $69.78 and $65.78 a barrel, respectively.
Meanwhile, Bloomberg pointed outthat Anglo-Swiss Glencore Plc and Swiss-based Trafigura Group commodity trading companies executed crude deals on the Shanghai International Energy Exchange platform along with other foreign companies, indicating their interest in China's oil futures.
According to Wei, this activity is especially important amid the US-Chinese row over the Trump administration's new high tariffs on Chinese imports, which is largely seen as nothing short of a trade war between Beijing and Washington.
Having announced additional tariffs on aluminum and steel imports, US President Donald Trump imposed $60 billion in extra tariffs on Beijing over allegations of intellectual theft.
In response, the Chinese leadership warned that a new trade war could deal a heavy blow to both countries.
Earlier, China's Commerce Ministry revealed a potential retaliatory measure which envisages imposing additional taxes on $3 billion worth of US goods, including pork, wine and aluminum scrap.
What is worse, however, as Nobel Prize-winner Robert Shiller noted in his latest interview with CNBC, is that the US-China's tit-for-tat measures will eventually undermine the global market, leading to a new economic crisis. - sputniknews -