So far so good. Petrodollar will be showing signs of wear-and-tear in the
very near future.
We have been documenting the demise of the dollar hegemony for the past
several years and the past two years the pace of the demise seems to be
moving like a rocket. All the little details being put handled since the
global financial meltdown in 2008 are now converging and one of the biggest
pieces is now showing its teeth – the Chinese oil futures contract priced in
yuan is growing in such a way that by the years end, at the current pace of
growth, this contract will present a real challenge to the petrodollar.
China’s newly-launched crude oil futures on the Shanghai International
Energy Exchange saw its trading volume surge to a record high in early June,
a positive sign that a wide variety of financial market players have been
keen to contribute liquidity into the new derivative market.
The trading volume for the front-month September delivery crude futures
contract was recorded at 275,006 lots last Friday, the highest since it was
launched on March 26, and nearly seven times the 40,656 lots seen on the first
trading day, data from INE’s website showed.
This normalizes to 137,503 lots based on international practice, as INE
counts each side of a trade – the buy and the sell — as two lots. One lot is
equivalent to 1,000 barrels. That means around 137.5 million barrels of crude
oil changed hands on paper last Friday, S&P Global Platts calculations
showed.
INE crude oil futures’ trading volume has been rising steadily since the
launch on March 26, with the average daily volume seen at 69,055 lots in
April and 170,554 lots in May — a rise of 147% month on month. Source – Platts
I don’t much but a 147% growth month-on-month sounds like a serious jump
and on top of that June is already showing signs this pace is not a fluke and
will continue into the future. While this market is still in the earliest of
stages of development the pace of growth seems to be significant and catching
a lot of people by surprise. It appears the first major hurdle to catching
the Brent and West Texas Intermediate (WTI) contracts will be to surpass the
Dubai Mercantile’s contact that averages more than 54,000 daily daily
contacts. With the current pace of the Chinese contract that hurdle will be
in the rearview mirror by the end of June and certainly by the end of July it
will be confirmed.
The two major contracts, Brent and WTI, have a combined daily total of 2.6
million contracts so the Chinese contract has some ways to go before it
posses any kind of real threat but it is well on its on way to establishing
itself as a global force.
Although the new INE crude futures market has been widely considered a
success so far, it is still very small compared with mature international
crude benchmarks in terms of trading volume and open interest, market
participants noted.
Currently, ICE Brent and NYMEX light sweet crude futures are the two
leading global benchmarks.
The Brent futures’ trading volume averaged 1 million lots/day on ICE in
May, with open interest seen at an average of 2.6 million lots in the month,
according to data on ICE website. Source – Platts
We should have better data and a better view after the July numbers print.
My guess is, the new China contract is going to continue growing and petrodollars
are going to continue waning.
