The newly established Shanghai crude oil futures market provides a natural experimental setting for studying the price cointegration and causal relationships between the Chinese domestic benchmark (Daqing) and international benchmarks (West Texas Intermediate and Brent). We find a significant change in the relationships between domestic and global oil prices before and after the launch of the Shanghai market. Moreover, using a Johansen cointegration test and a vector error correction model, we find long-term equilibrium and short-term relationships between the Shanghai market and global benchmarks. Shanghai crude oil futures prices also play a leading role in the price discovery of domestic crude oil spot prices, reflecting their dominant influence on the domestic market. The prices of the domestic crude oil market are thus becoming less influenced by global benchmarks but more influenced by the Shanghai crude oil futures market. The examined results of dynamic ARDL simulations model support the long run and short run relations between the Shanghai market and global benchmarks. The results also shows that the Shanghai crude oil futures market has response lags relative to those benchmarks.
|Early online date||22 Jan 2022|
|Publication status||Published - 15 Apr 2022|
Bibliographical notePublisher Copyright:
- Market efficiency
- Price cointegration
- Shanghai crude oil futures