We are not saying the petrodollar is going to go *poof* in the night, we
are saying the petroyuan is now a real player on the global stage.
We have been watching this story unfold for the past several months as we
believe this will be one of the more significant changes in how the Federal
Reserve Note, U.S. dollar is used on a global scale. These first few steps
that have been made using this new futures oil contract, that is settled
outside the dollar, has the potential to change global trade. With China and
Russia having an ever more interconnected banking and financial system this
makes the situation all the more precarious for the Federal Reserve Note and
the “world reserve currency” status.
We have pointed out that a 100% shift away from using dollars as a unit of
account settlement tool is not necessary – not at all. The damage a 30-40%
shift, possibly even a smaller percentage change, would be insurmountable, in
my opinion. The dollars flowing back into the U.S. economy would have the
potential to create massive inflation and overwhelm the average American tax
payer. China would be seen as the arch enemy and it could easily escalate
into a very serious situation. We are hoping for, wishing for and predicting
this will happen, we are saying this is a possibility if this new contract
continues growing as it has to this point.
The first delivery of oil has just been announced, as reported by OilPrice:
First Delivery Through China’s Oil Futures Set For September
In the first physical settlement of the Chinese yuan-denominated oil
futures contract, five companies will deliver a total of 600,000 barrels of
Middle Eastern crude grades to buyers of the September futures contract that
began trading in Shanghai in March, Reuters
reported on Wednesday, citing five people with knowledge of the plans.
China’s crude oil futures launched
in March, with crude set for delivery in September, the first month which the
Shanghai International Energy Exchange (INE) designated for deliveries in
order to allow the contract to develop and accumulate volumes for physical
delivery.
The deliverability, the volume, and smooth process will be key to China
fulfilling its ambition to have the yuan-priced oil futures contract become a
major crude benchmark on a global scale like the Brent and WTI benchmarks,
analysts say.
The first such test will be next month, during which Chinese companies,
including state-held majors, will deliver oil against the Chinese oil futures
contract to storage facilities that are among the eight sites that the
Shanghai exchange has approved for cargo delivery in the futures contract,
according to Reuters’ sources. Source
If you combine this with the other currency events, namely Turkey and
Iran, along with sanctions against Russia, this fall could get interesting.
The global stage is changing and the shift away from Western world debt seems
to be moving ahead. While some may argue this yuan backed futures oil
contract is not that important as the U.S. has just become the world leader
in oil exports, I would argue that is as fleeting as world reserve currency
status. Nothing in this world is permanent and those that are not attempting
to connect the dots, realistically, could find themselves in a situation they
are completely unprepared to address. Don’t be that person, pay attention and
make a plan. If you need it, great, if you don’t, great. You win either way.
We should have updated numbers for the August yuan backed futures oil
contact activity within the next week or so. We will be sure to keep a close
eye on the this unfolding situation and report back to you as soon as
possible.
