The Study On The Relationship Between International And Domestic Oil Spot Prices

Ever since the first and second global energy crisis had erupted in the1970s, people all over the world are increasingly paying attention to the oil price fluctuation. As is considered as the blood of the development in industry, the oil price fluctuation even supply safety is not only related to the stability of the macroeconomy of a country directly, but also affect the production and common life of a region indirectly. Especially for the countries which are in the period of economic transition such as China. With the rapid development of domestic economy, the oil consumption in China is increasing obviously and the level of dependence on oil imports even exceeds the highest level in history-55%. Thus, how to avoid the external risk in the most degree and detect the relationship between international and domestic oil price effectively, not only concerns the stability in the growth of China’s economy in the long run, but also determines the direction of oil price reform in future in China.Firstly, this paper reviews a large number of literature focused on the relationship between different oil prices such as spot price, future price and refined price, and comments the shortages and defects in the existing studies. Moreover, based on the inherent characteristics and possible relevance in the data including international and domestic oil spot prices, and combined with the stage characteristics of the oil price reform in our country, this paper sets the time of implementing oil price in the international community and cost pricing mechanism as two dividing points respectively, divides the whole empirical samples into three stages, and systematically investigates the dynamic correlation in the different stages between the two markets.Secondly, from the empirical analysis with Cointegration test and Granger causality test, we can draw a conclusion that there is no obvious relation in the two markets before1998, but it presents bidirectional Granger causality after1998. What’s more, the impact of international oil price to China’s oil price has absolute function and long duration. On the contrary, China’s oil price influences international price weakly and shortly. Finally, this paper establishes Error Correction Model (ECM)、Asymmetric ECM and Generalized Autoregressive Conditional Heteroskedasticity Model (GARCH) and investigates the impact of long run equilibrium to the two markets, as well as the fluctuation characteristics of themselves respectively. The empirical results show that when the external shocks made oil price volatility deviate from the level of long term equilibrium, there exists apparent asymmetric characteristics in the adjustment process. Furthermore, the value of adjustment in our country is greater than international market, and the value of downward adjustment is less than upward in China’s market, that is to say, China’s oil price remains in the high level extremely and easily, and the memory of high price is becoming more and more noticeable. The chief culprit hiding in the phenomena undoubtedly is oil price regulation which was carried out by Chinese government.In order to explore the influence of regulation to the domestic oil price volatility and economic development further, we applies a simple AD-AS model to observe the trend of domestic oil price fluctuation and the losing of social welfare under the conditions of whether regulation exists or not. The results manifest that the direct conductivity principle of the external shocks to the domestic oil market is not noticeable, but would cause China’s oil price to keep in high level and last for a long time. In contrast, if government has canceled price regulation in the past, the increasing international oil price would directly shock the energy industry and other related fields in our country.The further study also finds that the oil price regulation contributes to decreasing the negative shock of the high oil price caused by energy crisis in the short term, and avoiding the possibility of inflation abruptly increasing and economic recession in our country. But in the long term, the adverse impact to macroeconomy and the losing of social welfare caused by oil price regulation are greater than the direct losing by external oil price shock.Now that oil price regulation does more harm than good in the long term, the impending mission is to cancel oil price regulation, and accelerate the marketing progress in the domestic oil price reform. Certainly, this paper proposes several simple suggestions to the future reform in our country from five aspects.