Research On Price Discovery Function Of China’s Fuel Oil Futures Market

Oil is the most important strategic resource in modem industrial economy. Oil security is directly related to a nation’s security and the international political and economic order. In recent years, with the rapid rise of China’s economy, energy demand has been stronger and stronger. Oil consumption is growing, China has become the world’s second largest oil consumer. At the same time, the dependence on oil imports has been increasing, lots of crude oil products have been imported every year. The weak oil pricing weight is not proportional to the major share of oil demand.It not only brings a lot of difficulties for the domestic related enterprise to avoid price risk, but also buries great hidden dangers to our economy and nation.All these have strengthened the relation between China and oil futures market. Fuel oil is one of the most market-based varieties.The price of domestic fuel oil is highly influenced by foreign markets especially the Singapore market. Now the oil fuel futures contract has been listed in SHFE for nearly seven years since2004. The performance of this market is concerned by many researchers. Does it influence the domestic spot market significantly?First of all, this paper makes theoretical analysis of the price discovery function of futures market. Secondly it introduces the meaning of the price discovery function of futures market, main representative of price discovery theory, analyzes the factors that influence the efficiency of price discovery function of futures market. Then it summarizes the current situation of the development of domestic and foreign fuel oil market. Finally, the paper using Granger causality test and impulse response function and other methods to test price discovery function of Shanghai fuel oil futures market, with building a vector autoregressive (VAR) model.The result is that the function of price discovery of Shanghai fuel oil futures has achieved a measure of success and the futures price has played an important role in the function of price discovery.