Money & Finance › Currencies, the dollar & crypto › The petroyuan: pricing and paying for oil in yuan
Shanghai INE yuan crude oil futures (2018)
Mar 26, 2018· Asset or instrument
Fact, law or dataA rule, statute, definition or measured number.
China's yuan-priced crude oil futures, traded on the Shanghai International Energy Exchange (INE) since March 26, 2018.
See it on the Money & Finance map →How it works
Each contract covers 1,000 barrels of medium sour crude, mostly Middle Eastern grades such as Dubai, Oman and Basrah plus China's Shengli, delivered to bonded storage tanks at Chinese ports. It was the first Chinese commodity futures contract open directly to foreign traders, who may post margin in dollars. By volume it has ranked third among crude contracts, after WTI and Brent. Most physical oil sold to Asia is still priced off Dubai and Oman benchmarks, in dollars.
Why it matters
It gave oil a yuan price for the first time, a building block of any petroyuan. US investors usually get oil exposure through WTI or Brent futures funds instead.
Facts, rules and data
Exchange trading data, Futures Industry Association volume rankings, and academic studies of how its prices track Brent and Dubai.
Debates and risks
How much of its volume is Chinese speculation rather than oil companies hedging, and whether foreign use will ever grow large.
Connections (4)
▸Shanghai INE yuan crude oil futures (2018) gave a price benchmark to The petroyuan: pricing and paying for oil in yuanFact, law or data
The connection
For oil to be sold in yuan, buyers and sellers need a yuan price to quote and a way to hedge it. The Shanghai contract supplies both, based on Middle Eastern crude delivered to China. It is the pricing leg of the petroyuan; settlement in yuan is the other.
When and why
Shanghai, from March 26, 2018.
How we know
Exchange data show deep trading, but few physical oil contracts use it as their main benchmark.
Debates and risks
Whether producers will ever price long-term contracts off Shanghai instead of Dubai and Oman.
▸Shanghai INE yuan crude oil futures (2018) are yuan-priced oil Futures contractsFact, law or data
The connection
It works like any futures contract: buyers and sellers agree today on a price for oil delivered later, post margin with the exchange, and settle gains and losses daily. The differences are the currency, yuan, and the delivery point, bonded tanks in China.
When and why
Shanghai International Energy Exchange, since 2018.
How we know
The exchange's contract specifications and clearing rules.
Debates and risks
Whether Chinese regulators' history of intervening in futures markets deters foreign traders.
▸Shanghai INE yuan crude oil futures (2018) aim to rival Brent and WTI in Commodities: oil, metals and cropsFact, law or data
The connection
Brent, traded in London, and WTI, in New York, set the price for most of the world's oil. Shanghai aims to be Asia's benchmark for the Middle Eastern crude Asia buys. It trades heavily, but mostly among Chinese traders, and China's capital controls limit outside use.
When and why
Launched 2018; it has ranked third globally among crude contracts by volume.
How we know
Futures Industry Association rankings and exchange statistics.
Debates and risks
Whether its volume reflects lasting benchmark status or mostly short-term speculation.
▸WTI and Brent: the oil price benchmarks on NYMEX and ICE are challenged in Asia by Shanghai INE yuan crude oil futures (2018)Fact, law or data
The connection
Brent and WTI are priced in dollars and trade mainly in the West. China, the largest crude importer, launched yuan-priced futures in Shanghai in 2018 so Asian oil could be priced, hedged and paid for in yuan, and to raise China's influence over oil pricing.
When and why
Shanghai International Energy Exchange, since March 26, 2018, priced on Middle Eastern medium sour crudes delivered to Chinese ports.
How we know
Trading volumes reported by the exchange and the Futures Industry Association; studies show Shanghai prices closely track Brent and Dubai.
Debates and risks
Whether the Shanghai contract can become a true global benchmark while China limits capital flows and the yuan is not freely convertible.