Return in Chinese yuan-denominated crude oil futures has surged since President Donald Trump degraded the U.S. out of the Iran nuclear deal.
Launched on March 26, crude oil expects on the Shanghai International Energy Exchange (INE) were met with fanfare — and skepticism all round how much a state-managed marketplace could displace the well-established crude mercantilism in the New York Mercantile Exchange’s West Texas Intermediate (WTI) and the Intercontinental The Street’s Brent futures.
But Trump’s move to reimpose sanctions on Iran may take spurred interest in the Chinese oil futures. Last Wednesday, daily return volumes in INE oil futures hit a record of over 240,000 lots, double what they were on Tuesday in Asia, already news of the renewed sanctions broke.
By way of comparison, some 1.4 million shares of WTI crude changed hands each day in April this year, while fewer than a million oodles of Brent crude were traded daily in the same period. One lot is the a kind of 1,000 barrels on all three exchanges.
“There has been speculation that stipulations on Iranian oil sales and the lack of access to dollar financing will push up demand for yuan-denominated Shanghai futures,” said BMI Research in a note on Monday. “With China strengthening its energy ties with Iran and given Beijing’s desire both to forward the contact and — relatedly — to further internationalize the use of its currency, payment in yuan and benchmarking against Shanghai futures inclination seem logical.”
Oil market veteran John Driscoll told CNBC finish finally week that Iranian traders have the option of trading in Chinese yuan-denominated original oil futures on the Shanghai International Energy Exchange — circumventing any restrictions on dollar-denominated craft and U.S. banks.
Some industry watchers remain skeptical over the long-term brunt Iran will have on the Chinese futures, as Iranian crude is not deliverable into the Shanghai oil draw together.
Even so, interest in the Shanghai oil futures have surpassed expectations, with Chinese state-owned associates and foreign interests taking part in the trade.
At least one oil sales unity has been signed with state-owned major Sinopec, Reuters despatched.
“Concerns over heavy state dominance in the oil sector does not manifest to be dampening participation in the contract, neither does its denomination in yuan and the summed FX risks this brings,” said BMI, adding that the futures are progressing tracing.
“Beijing ‘s attempts to ‘internationalize’ the contract appear to have indemnified off,” it added.