Yuan to be used for Sino-Russia oil trade

Workers use machinery on the drilling floor of an oil derrick in the Salym Petroleum Development oil field near the Bazhenov shale formation in Salym, Russia. The decision by Gazprom Neft to use renminbi for trade settlement may prompt more Russian firms to follow suit. [Photo/Agencies]

The decision by Gazprom Neft, Russia's third-largest oil producer, to use renminbi for trade settlement may prompt more Russian firms to follow suit, experts said on Wednesday.

The Russian company had on Friday said that it would henceforth settle all of its crude sales to China in renminbi.

Gao Jian, an oil analyst at Sublime China Information, a Chinese commodity consultancy, said China is actively promoting internationalization of renminbi in global trading and the energy sector can be a breakthrough.

"Crude trading between China and Russia is huge, and this will help China expand using renminbi in more energy projects in future," he said. "The exchange rate of renminbi and rouble is stable at the moment and this creates good headwinds for yuan trading."

The currency cooperation will also help the two countries gain more opportunities to work together in energy and other related sectors, he said.

China National Petroleum Corporation, the Chinese trading partner of Gazprom, declined to comment on the news. Most of the global oil trading is currently done in the US dollar.

Russian companies' crude exports were largely settled in dollars until last summer, when the United States and Europe imposed sanctions on the Russian energy sector over the Ukraine crisis. The change in currency was necessitated due to the sanctions, said sources.

According to Gao, other than Russia, it might not easy to promote the use of renminbi as a settlement currency in other markets due to the stiff political pressure from the United States.

Liu Yijun, a professor at the China Petroleum University, said it is not an opportune time for China to use renminbi to buy oil from Russia, due to the uncertain political climate.

"Using renminbi to buy oil is a definite trend in the market, but at the moment, China and the US have some disputes and minor friction. Hence it is not a good time for the internationalization of renminbi in the energy sector," Liu said.

He said though Russia and China are stepping up cooperation in many industries, it is better for both sides to use renminbi in the oil trade for a short time. The real benefits of such an exercise will only be seen in the long term, Liu said.