China launched its first ever crude-futures contract as the world’s biggest oil buyer seeks to wield greater power over pricing and challenge benchmarks in the U.S. and Europe.

The long-awaited yuan-denominated futures on the Shanghai International Energy Exchange traded at 432.2 yuan a barrel ($68.48) for September settlement at 9:45 a.m. local time. The contracts, which are open to foreign investors, end years of delays and setbacks since China’s first attempt to list the securities in 1993.

 

Analysis:  This event furthers the strength of the CNY(reminbi) while reducing FX costs, when oil is bought and sold in CNY wholesale buyers will have to buy into CNY to purchase oil, local oil buyers in china will not have to FX where they can trade locally. FX transaction costs is also reduced.

 In the past, wholesale buyers would buy into USD. While the consumption of oil does not increase with the added exchange, the currency the futures contract is denominated in has increased usage.

Conclusion: 5-10% decline in USD volume activity