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The Negative Impact of "Petro Dollar"
In the 1970s, the United States and OPEC reached an agreement to use the U.S. dollar as the only currency for settlement of oil. From then on, the movement of the U.S. dollar and the oil market are inseparable. It can be said that in the ups and downs of oil prices, various kinds of emergencies are just fuses. The Fed's every move is the “total button†that ultimately determines the trend of oil prices.
Since the US subprime mortgage crisis, the Fed cut interest rates three times in succession on September 18, October 31 and December 11 last year. International oil prices have risen. The price of New York's light crude oil prices has risen 94% over the previous trading day. Points, US$4.15 and US$2.16, of which the previous two interest rate cuts caused the crude oil futures prices on the same day to close at a record high of US$81.51 and US$94.53 respectively.
The continued depreciation of the dollar continues to push up oil prices. Last year, the U.S. dollar depreciated against 14 major currencies in the world, including a depreciation of about 10.5% against the euro and a depreciation of about 6% against the yen. Research shows that for every 1% devaluation of the U.S. dollar, energy and raw material prices will increase by the same amount. The current price of about 100 US dollars is priced in euros, which is equivalent to 60 US dollars.
The depreciation of the dollar has also increased the attractiveness of speculative funds for commodity markets such as oil and gold. Experts estimate that at least 25 US dollars is pushed up by oil speculation. West Texas Intermediate (WTI) futures trading volume has grown at an average annual rate of 18% since the beginning of the century. It is expected to reach more than 1.3 million contracts/day last year, totaling 1.3 billion barrels/day, which is 15 times the global daily consumption. By the end of last year, the scale of hedge fund assets entering the oil market had reached US$200 billion, an increase of 60% from the beginning of the year.
In the face of the depreciation of the U.S. dollar and high oil prices, the increased export capacity of the U.S. can offset its impact on the economy; the EU, Japan, and the United Kingdom, which are freely convertible due to their currencies, can also hedge against rising oil prices through the appreciation of their currencies; while the currency is not yet freely convertible. China, on the other hand, can only withstand the dual pressure of increasing oil costs and appreciation of the renminbi. For a big oil-consuming country, this is undoubtedly a difficult reality.
Dealing with oil price fluctuations requires financial strategic cooperation
At present, the price of oil sold to Europe in the Middle East is linked with the Brent oil price in London. The price of oil sold in the United States is linked with the WTI price in New York. The oil sold in Asia is referenced to the Platts price index. The Platts price index is based on the evaluation of the spot market transaction and is easier to manipulate. According to statistics, the price of Saudi Arabian light oil exported to Northeast Asia is higher than the average price of US$1 per barrel sold in Europe, and is US$3 per barrel higher than that sold to the United States. This alone makes China increase its oil import costs by 500 million yuan each year. 15 billion U.S. dollars. The core issue of a country’s oil strategic security is whether it can guarantee the stability of oil supply at a reasonable price. In order to change the above-mentioned unfavorable circumstances, the end of 2007, China's energy law draft for the first time: "The state will establish ... ... market-led energy price formation mechanism."
So, how to form the "market price" of China Petroleum? The answer is: to establish our own reasonable oil finance strategy, encourage more enterprises to enter the international oil and financial markets, actively try the RMB settlement of oil transactions, and gradually establish measures such as the oil futures market to effectively cope with high oil prices. Among them, the oil futures market will be the ultimate choice. To change the current situation of crude oil import prices higher than in Europe and the United States requires a developed crude oil futures market in order to gain a say in the pricing of crude oil; after the liberalization of domestic refined oil prices, it is still necessary for the refined oil futures market to effectively form prices. In addition, the huge social reserves formed by the exchange of oil in the exchanges will also make up for the lack of national strategic oil reserves.
However, there are many problems that China needs to deal with in establishing a crude oil futures market. Internationally, Japan, India and other Asian countries have accelerated the listing of oil futures in an attempt to seize the position of the Asia-Pacific oil pricing center; Europe and the United States have accelerated their expansion into the Asia-Pacific region in an effort to curb the formation of an independent oil pricing system in the Asia Pacific region. At home, the vast majority of oil companies are not yet able to participate in the crude oil import trade and lack the motivation to participate in the market. In addition, whether crude oil futures are priced in US dollars as soon as possible to form an international influence, or whether renminbi pricing is based on long-term and steady development, this issue is still inconclusive.
In the current process of financial globalization and the continuous change and integration of the international monetary system, some oil-producing countries have begun to require their oil buyers to settle their currencies in currencies other than the US dollar. The “oil euro†and “oil yen†have made their debut. The trend of oil pricing and transaction currency diversification has begun to take shape, and many countries have expressed their willingness to accept RMB settlement. Faced with the pressure of appreciation of the renminbi caused by rising oil prices, the gradual trial of “oil renminbi†is a good choice for China.
At present, China's financial capital has not yet truly entered the international oil market. A few large oil companies can go abroad for hedging after approval, but due to large targets and incomplete domestic related systems, they are often in a passive position. In addition, there are no domestic hedge funds and speculative funds cannot enter the international oil futures market for the time being, which is obviously detrimental to China's economy. With the development of the domestic futures market, the growth of the fund industry and the opening up of the financial industry, domestic liquidity should enter the international oil market as soon as possible and gain revenue in the volatile oil price fluctuations.
During the week, international oil prices ended up breaking 100 for two consecutive trading days. Apart from the relationship between oil supply and demand and international politics, financial factors such as the weakening of the US dollar and fund speculation contributed to the financialization of the oil market. As a major oil-consuming country, making full use of financial means to cope with fluctuations in oil prices should be an important aspect of China's energy strategy.