De-dollarization Accelerates: China Readies Yuan-Priced Crude Oil Benchmark Backed By Gold. Three points of interests:
1) Equity Market Maturity – Their equity market does not have the maturity to sustain such a large liquidity, not to mention their public equity/debt market foundation is still work in progress. While we see headlines of huge rounds of financing for startups in SE Asia every other day, at the end of the day, the public market has to mature in close parallel with the private market in order for they money to be funneled from the upstream to the downstream. Saudi Arabia, one of the largest producer of crude oil, is starting to trade a small portion of their market in Yuan.
2) Going Full Electric and Lithium (rare earth) Price – A lot of companies and countries are pushing to go full electric in the next few decades, the implications of this is also pretty big in that, the projected demand for oil will essentially decline exponentially per policy (but I don’t think this will be the case when the time comes). Bear in mind one of the biggest components of electric vehicle is lithium, aka a rare earth in which China has an overwhelming monopoly, in both domestic and foreign investment ownership perspective. Lithium price has expanded exponentially in the past few years alone, delivering more % return than the equity market AND definitely more than the raw materials price appreciation in the same period.
3) Liquidified Natural Gas (LNG) – One of the first US LNG just landed in Europe recently and in Asia last quarter so this would create another interesting geopolitical leverage in Europe. But even more interesting is whether this will another great natural resources for the USD to hedged on if the demand and market value is high enough.
If the market adoption is Yuan-hedged is there, I don’t think they will be able to fully replace USD-hedged oil price given all the complexity that goes behind the commodity price itself including military, political and economic levers, but it will create a more balanced (or disrupted) market.
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