The Oil Trade Only for Those Ready to Brave the Wild Yuan - Bloomberg:
Wild swings in the yuan and punitive storage costs are making oil traders think twice about a bet on China’s fledgling crude futures that looks highly lucrative on paper.
Last week, taking into account freight costs, they could have theoretically bought a November-loading cargo of Middle East oil for delivery to a buyer of December futures in China at a profit of $3.35 a barrel, or $6.7 million for the whole shipment. That’s because Chinese futures, which started trading in March, fetched an unusually high premium versus oil from outside the region.
In practice, though, other risks associated with the Shanghai contract make the trade less of a slam-dunk. And they’re part of the reason why the yuan-denominated futures have a way to go before they become the global benchmark that Beijing wants to rival London’s Brent or New York’s West Texas Intermediate, which are both priced in dollars.
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