Will China Forming Oil Buying Cartel End the Petrodollar?

Authored by Tom Luongo via Gold, Goats, ‘n Guns blog:

China is building a buyer’s group (or cartel) comprised of its major state oil companies. I’m frankly surprised that this wasn’t already the case, since everything else is tightly controlled in China.

A report from Bloomberg (via states that:

Senior executives from China Petroleum (NYSE:SNP) & Chemical Corp., PetroChina Co., Cnooc Ltd. and Sinochem Group Co. are in advanced talks to iron out details of the plan, said people familiar with the initiative, who asked not to be identified as discussions are private and ongoing. The proposal has won the support of the Chinese central government and relevant industry watchdogs, the people said.

Since China is now the world’s largest importer of oil it only makes sense they would flip the switch and act as price makers rather than be price takers.

This makes perfect sense, economically, in the current environment as troubled oil exporters like Saudi Arabia continue to try and exert influence over the oil market.

The Saudis refuse to admit to themselves that their era of dominance over oil prices is, itself, over. As I noted in my blog from last week their attempt to gain market share through price slashing did nothing more than slash their own revenue to the bone, while making no new friends.

They shipped out 50% more oil and revenues plunged by 65%. They practically gave the stuff away in April. They had to. With the Riyal tied to the dollar they had to undercut Russian oil which trades in freely-floated rubles.

Because while China is certainly happy to pay less for oil, the knock-on effects of undermining its capital markets were and are far greater than the savings per barrel.

And that made them no new friends in the Poliburo.

That Crown Prince Mohammed bin Salman (MBS) acted to rashly in March I’m sure did not sit well with Chinese leadership. They clearly have no use for such an unreliable partner who refuses to take anything other than the U.S. dollar for its product.

To remind everyone, MBS threw his tantrum which locked up global markets after Russia’s refusal to agree to further OPEC+ production cuts in March. That precipitated the massive drop in oil prices which started the financial crisis.

So, it’s pretty obvious to me now that China seeks to further marginalize Saudi Arabia and the U.S. in the oil space.

The proof? Back to the Bloomberg article:

For a start, the group is set to collectively issue bids for certain Russian and African grades in the spot market, they said. While it’s unclear how the cooperation will evolve, the group represents refiners that import more than 5 million barrels of oil a day. That’s nearly a fifth of OPEC’s total output, which would make it the world’s largest crude buyer in theory.

Because here’s the rub, as always, China is looking for ways to deepen international use and liquidity of the yuan. Saudi Arabia and the U.S. want to continue use of the dollar as the main settlement currency for oil trading, the so-called petrodollar.

It is the petrodollar that provides the most inertia the world fights against to allow the rise of other currencies as settlement. Dollars are cheap to use, freely accepted and, for now, still a good store of (at least) medium-term value.

The petrodollar was created by the relationship between the U.S. as the biggest importer and Saudi Arabia the biggest exporter. As long as that relationship held the petrodollar flowed into foreign central banks, deepening everyone’s trust in it.

Now China is saying things have changed. Europe and China are willing to pay a little more for Russian Urals grade (per my article from Friday) after MBS’s tantrum.

Moreover, China wants its oil futures contract in Shanghai more dominant in the global market. That contract is a key piece to deepening Yuan liquidity.

Shifting the oil trade where it can trade in real time versus would be a boon to the market. Most of the Arab states set their tender prices at the beginning of the month and they don’t change.

Back to Bloomberg:

Importers … have struggled this year to manage the amount of crude received each month amid fluctuating domestic demand, refining margins and swelling stockpiles.

Volumes can only be adjusted slightly from earlier-agreed liftings, and final decisions lie with the seller. Saudi Aramco, Iraq’s SOMO and Abu Dhabi’s Adnoc all sell their crude at official prices announced early each month.

Indian processors and ports went so far as to declare force majeure in attempts to back out of crude liftings after the world’s biggest lockdown slashed demand.

What this cartel will do is create the opposite dynamic than has existed previously. Buyers will dictate terms to the sellers, which is the way the market is supposed to work.

And it’s goal, I think, is to break the monthly price tender system and put more volume up for open bid in Shanghai.

Cartels are inherently unstable but, at times, under extreme circumstances, they can be very effective at creating change to a sclerotic system. I think this is exactly what China is looking to do here.

Watch to see if this cartel comes together. If it does then in order to save itself, Saudi Arabia will have to come to Chinese importers head scarf in hand looking for business.

At the same time, because they accept other currencies for their oil, Russia stands to take more market share. They can always grind out the arbitrage in currency terms between the Saudi monthly tender price and their own COGS.

Lastly, don’t think for a second that China isn’t willing to pay a little more here or there to deny MBS and President Trump a few billion in much-needed export revenue and hand it to their partners in Russia.

Especially when you factor in the real arbitrage that neither country can offer better terms on, that of the real yield on a Russian government bond and a U.S. bond.

Join my Patreon if you need help navigating the Swamp of commodities and their political import.

Install the Brave Browser if you want to slow Google’s takeover of our public behavior.


The post Will China Forming Oil Buying Cartel End the Petrodollar? appeared first on The Duran.

The Duran

Dear friends of this aggregator

  • Yes, I intentionally removed Newsbud from the aggregator on Mar 22.
  • Newsbud did not block the aggregator, although their editor blocked me on twitter after a comment I made to her
  • As far as I know, the only site that blocks this aggregator is Global Research. I have no idea why!!
  • Please stop recommending Newsbud and Global Research to be added to the aggregator.

Support this site

News Sources

Source Items
Please Stop the Ride 27
The Infectious Myth 27
Lockdown Skeptics 52
Sam Husseini 33
Dr. Andrew Kaufman 3
Swiss Propaganda Research 36
Off Guardian 145
Cory Morningstar 10
James Bovard 70
WWI Hidden History 51
Grayzone Project 453
Pass Blue 399
Dilyana Gaytandzhieva 17
John Pilger 426
The Real News 367
Scrutinised Minds 29
Need To Know News 3492
FEE 5505
Marine Le Pen 420
Francois Asselineau 25
Opassande 53
HAX on 5July 220
Henrik Alexandersson 1263
Mohamed Omar 404
Professors Blog 10
Arg Blatte Talar 40
Angry Foreigner 19
Fritte Fritzson 12
Teologiska rummet 36
Filosofiska rummet 148
Vetenskapsradion Historia 197
Snedtänkt (Kalle Lind) 265
Les Crises 4090
Richard Falk 226
Ian Sinclair 139
SpinWatch 61
Counter Currents 12764
Kafila 684
Gail Malone 45
Transnational Foundation 221
Rick Falkvinge 95
The Duran 11655
Vanessa Beeley 226
Nina Kouprianova 9
MintPress 6177
Paul Craig Roberts 2672
News Junkie Post 76
Nomi Prins 27
Kurt Nimmo 191
Strategic Culture 6340
Sir Ken Robinson 83
Stephan Kinsella 123
Liberty Blitzkrieg 889
Sami Bedouin 65
Consortium News 2685
21 Century Wire 4239
Burning Blogger 324
Stephen Gowans 103
David D. Friedman 174
Anarchist Standard 16
The BRICS Post 1543
Tom Dispatch 647
Levant Report 18
The Saker 5234
The Barnes Review 614
John Friend 538
Psyche Truth 160
Jonathan Cook 173
New Eastern Outlook 5008
School Sucks Project 1833
Giza Death Star 2221
Andrew Gavin Marshall 28
Red Ice Radio 699
GMWatch 2637
Robert Faurisson 150
Espionage History Archive 35
Jay's Analysis 1196
Le 4ème singe 91
Jacob Cohen 225
Agora Vox 20049
Cercle Des Volontaires 458
Panamza 2651
Fairewinds 122
Project Censored 1265
Spy Culture 631
Conspiracy Archive 85
Crystal Clark 19
Timothy Kelly 659
PINAC 1482
The Conscious Resistance 1095
Independent Science News 91
The Anti Media 6895
Positive News 820
Brandon Martinez 30
Steven Chovanec 61
Lionel 318
The Mind renewed 463
Natural Society 2627
Yanis Varoufakis 1166
Tragedy & Hope 122
Dr. Tim Ball 114
Web of Debt 168
Porkins Policy Review 459
Conspiracy Watch 174
Eva Bartlett 648
Libyan War Truth 381
DeadLine Live 1916
Kevin Ryan 69
Aaron Franz 275
Traces of Reality 166
Revelations Radio News 126
Dr. Bruce Levine 162
Peter B Collins 1822
Faux Capitalism 205
Dissident Voice 12184
Climate Audit 228
Donna Laframboise 521
Judith Curry 1201
Geneva Business Insider 40
Media Monarchy 2788
Syria Report 84
Human Rights Investigation 94
Intifada (Voice of Palestine) 1685
Down With Tyranny 13846
Laura Wells Solutions 51
Video Rebel's Blog 490
Revisionist Review 485
Aletho News 23268
ضد العولمة 27
Penny for your thoughts 3451
Northerntruthseeker 3024
كساريات 37
Color Revolutions and Geopolitics 27
Stop Nato 4917 Blog 3465 Original Content 7771
Corbett Report 2710
Stop Imperialism 491
Land Destroyer 1309
Webster Tarpley Website 1161

Compiled Feeds

Public Lists

Title Visibility
Funny Public