END OF THE PETRO$
China's looking to reorder global oil trade by transacting with Saudi Arabia in yuan. The move could dampen the dollar's dominance.

Phil Rosen
Tue, December 13, 2022 

Now let's talk China and oil.

1. President Xi Jinping is pushing to buy oil using yuan, a move that threatens to rattle global energy trade and hit at the long-standing dominance of the US dollar.

At a summit with Arab leaders on Friday, Xi said China will continue to import large volumes of energy supplies from Gulf states, and settle payments using its own currency.

"The Shanghai Petroleum and Natural Gas Exchange platform will be fully utilized for RMB settlement in oil and gas trade," Xi said, according to a transcript of his speech published by the state-run China Daily.

While the president didn't specify when the change would go into effect, and whether Gulf nations will take up the proposal, it's been reported that Saudi Arabia — the world's top oil exporter — has already been in talks for months to trade oil in yuan with China.

As things stand, roughly 80% of global oil sales are done in dollars, and Saudi Arabia has inked deals exclusively in the greenback since 1974.

Should a Saudi-yuan deal crystallize, it would bolster China's currency at the expense of the dollar, as well as reinforce Beijing's status as a critical player in global financial markets.

But it's hard to talk about China's role in oil markets without nodding to their extensive zero-COVID policies, which have crimped global oil demand since 2020.

Currently, the international benchmark for crude is hovering around $77 a barrel, but a fully re-opened China could push prices above $100 a barrel next year, according to UBS.

Easing pandemic measures in China combined with a Europe's ban on Russian oil imports, which came into effect last week, will stoke demand and stifle supply — meaning prices will go up.

"Chinese oil demand has been bottled up for three years now, and China has a huge multiplier effect on the region," Energy Aspects' analyst Amrita Sen said Monday.

"China reopening will be very very bullish for oil markets," she added. "Now, again, not expecting that to be overnight, but over the course of next year, this is going to be probably the single biggest driver of oil prices."