Toward energy finance market transition: Does China’s oil futures shake up global spots market?

Abstract

China is breaking through the petrodollar system, establishing RMB-dominating crude oil futures market. The country is achieving a milestone in its transition to energy finance market internationalization. This study explores the price leadership of China’s crude oil futures and identifies its price co-movement to uncover whether it truly shakes up the global oil spots market. First, we find that for oil spots under different gravities, China’s oil futures is only a net price information receiver from light-, medium-, and heavy-gravity oil spots, but it has a relatively stronger price co-movement with these three spots. Second, for oil spots under different sulfur contents, China’s oil futures still has weak price leadership in sweet, neutral, and sour oil spots, but it has strong co-movement with them. Third, for oil spots under different geographical origins, China’s oil futures shows price leadership in East Asian and Australian oil spots at the medium- and long-run time scales and strong price co-movement with East Asian, Middle Eastern, Latin American and Australian oil spots. China’s oil futures may not have good price leadership in global spots market, but it features favorable price co-movement.

Graphical abstract

Keywords

China’s oil futures / price information spillover / price co-movement / BK spillover index / BDECO model

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Higher Education Press 2022