The Yuan and oil

The massive trade deficit between China and the United States has a solution:  Let the Chinese yuan  float freely in the forex markets.  Experts believe the yuan would strengthen compared to the US dollar ($) and that Chinese exports would become more expensive...evening the playing field.  There have been a number of rebuttals to this "solution":  Another currency for the US$ to compete with, Interest rates in the US would probably rise and a the question would it have the desired effect on jobs that the US wants (come back to the US).  However, this posting deals with energy. 

What effect if any would a floating yuan have on oil?  Wu Lei and Liu Xue-Jun believe the effect would be significant and not very good for the US economy. 

Mr. Wu and Mr. Liu key points:

• The purchasing power of China would increase as their currency strengthens.
• With oil being denominated in US$, the price of oil would become cheaper.
• Chinese oil demand would than probably increase.
• Greater demand would exacerbate the supply/demand balance.
• A yuan revaluation would hurt other importers of Chinese goods, some of which might not have the economic foundation to prosper/withstand an inflationary environment.
• Oil-producing nations would see a devaluation of its driving currency (oil) and this might hurt the supply picture.
• China's image would worsen on a global level and economic retaliation might occur. 

Comment: This seems to make economic sense and frankly it is a little scary. Cheap oil for a burgeoning populace could cause demand to outstrip supply quickly and violently.  Be careful for what you wish for.