The latest trade figures on Chinese/Russian trade should be further warning to the U. S. that economic sanctions do not work…
Authored by Tom Luongo,
The latest trade figures on Chinese/Russian trade should be further warning to the U. S. that economic sanctions do not work. In May 2017 Russian and China agreed to increase bilateral trade to $80 billion by the end of 2018.
Well, they’re a year ahead of schedule…
The official figures for 2017 came in at $84.07 billion.
They did more than $8.1 billion in business in December alone. With the opening of the new ESPO oil pipeline connecting Siberia to China doubling the amount of oil China can import to 600,000 barrels per day we’ll see those numbers continue to accelerate.
And that’s the key. Remember, the massive $400 billion gas deal China made with Gazprom in 2014 hasn’t begun delivering gas. The first Power of Siberia pipeline isn’t due to be completed until 2019. The second Power of Siberia pipeline is on the table after this one.
And the two countries just agreed to a third pipeline to bring gas in from Russia’s far east last month.
So, despite back-biting from western media about the profitability of these projects, they are going forward and the two countries continue to strengthen fundamental ties to one another.
Greasing the Skids
We are now just a week away from trading yuan-denominated oil futures on the Shanghai International Energy Exchange(INE). Trading begins January 18th.
And while that won’t change the face of oil futures overnight, it will begin shifting price discovery away from U. S. dollar markets. It will also improve external yuan liquidity as well as visibility for Russian oil on the global market.
The Shanghai contract is for Medium Sour crude which is closer to the type of oil mainly produced by Russia. Russian Urals crude is considered Medium Sour. Saudi Arabia’s and most of OPEC is sour oil (higher in sulfur with a lower pH). With the OPEC production cuts which Russia agreed to emulate, mostly hit this market.
Both WTI and Brent crude are benchmarks for Light Sweet Crude like that of the U. S. shale producers, Venezuela, Nigeria and Libya. So, this contract is designed to properly price other grades of oil not tailored to U. S. refinery needs.
And for that reason alone it will be a major competitor in the long run. The current oil market is heavily fragmented because there is no direct futures market for Sour grades of crude.
Shanghai’s contract is changing that game. Between this and that profits from it can be converted to gold via the Shanghai Gold Exchange, gives this market immediate credibility.
The effects of this have been over-stated on the one hand by hard-money advocates and under-stated on the other by entrenched financial analysts.
The important takeaway is that China has created the first unassailable and above-ground challenge to the petro-dollar oil trade.
