Fundamental Change In The Oil Market (And Other Markets) Are Coming

China announced its aggressive plan of the Free Trade Zone (FTZ) in Shanghai today. The zoning of FTZ was approval back in July but no details were available at the time what the plan entails. More details are now disclosed with the announcement this time.

Key activities allowed in FTZ:

1. Foreign entities will be allowed to invest more freely in Chinese markets

2. Some kind of more flexible currency exchange mechanism

3. International oil future trading platform

Point 1 and 2 are obviously facilities designed to enable point 3. If the oil future contract is going to be settled in Chinese Yuan or Russian Ruble, even partially, the impact will be huge. This is the last piece of key economic construct that China needs to completely bypass the US dollar for international trading not involving United States.

Should this happens, the premium on US Dollar will be slashed significantly as Asian countries will no longer need to transact in USD for majority of their international trades.

The immediate impact, however, is the brave new world of Asian session crude oil trading. Be ready.

Sources:

Reuters

http://www.reuters.com/article/2013/09/29/us-china-ftz-idUSBRE98S02K20130929

Yahoo

http://news.yahoo.com/china-adjust-loan-deposit-ratios-banks-shanghai-free-072927597–sector.html

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