China is said to be launching a long-delayed yuan-priced crude oil futures contract by the end of the year in what may be a seismic shake up to the crude market. The global crude market is 96 million barrels per day with main trading in London and New York but China's futures contract could mark a seismic change.
While it looks like it may receive an enthusiastic reception from eager domestic investors, foreign investors may proceed with a bit more caution.
The Shanghai International Energy Exchange which has been preparing for the listing and completed trials in July this year. China is the world's largest net importer of crude oil of 7.6 million barrels per day (b/d) of crude oil imports in 2016 according to the US Energy Information Administration.
Foreign investment dependent on regulatory touch
Although there isn't an official launch date news reports suggest the earliest date for the yuan oil futures trading could begin around Christmas when the market is otherwise quiet or it could a later launch perhaps at the beginning of 2018.
Analysts have said the product is seen as an important local hedging tool for the Chinese oil industry and that financial institutional investors will consider it an integral part of their portfolio.
In a first, foreign investment funds and oil companies can trade directly in yuan-denominated contracts without having onshore trading operations.
However, how much it can drive volumes remain largely dependent on how Chinese regulation bears on the market - a heavy-handed approach (a precedent seen in the equities market) could turn off international investors and prevent huge volumes.
Challenger to petrodollar?
Market experts say the yuan crude oil futures contract could down the line become a challenger to the dominancy of the US dollar as exporters will have another currency to use.
The move is widely seen as a step (albeit one that has been speculated upon for three years) in China's plans for a 'petroyuan', shifting oil out of petrodollars and perhaps is a strategy to shift the way the game in the global oil and gas market is played.
This is a keenly awaited derivatives product whether or it comes wrapped in a bow in time for Christmas remains to be seen.