Does China Play A Role In Oil Price Fluctuations?

This study examines if China's economy takes part in the determination of the crude oil price.China's investment activity,in particular – the volume of China's investments in fixed assets abroad,is used as a benchmark of how Chinese economy does perform.There are two main reasons for that: the first and foremost,China is an investment-driven economy;the second,the investment component is the most dynamic compared to other elements of the Gross Domestic Product(GDP)of China.The aim of this paper is to identify if there was any interdependence between China's investments and crude oil price over 2009-2016 years.If yes,how strong this relationship was,and how significant China's factor was in comparison with the other factors taken into account.Considering the most recent changes in the world economy and political environment,we strive to find out if China was one of the causes of the recent crude oil crisis of 2014-2016 years,with the use of the most current methodology.The other topics discussed include oil shocks of the previous years,shale gas revolution and its real world meaning,OPEC countries and their oil market influence,the lift of Iranian sanctions and the global economic activity.This Thesis is comprised of six chapters.Collectively,all the chapters provide an introduction to the topic and a research process,review of previously made investigations on the object of study,a detailed description of the research methodology,analytical part and characteristic of pros and cons of using VAR modeling in econometric research papers.An unrestricted multivariate vector autoregression model(VAR)is applied to 7 variables,2 of which are dummy variables,and the rest – are quantitative.Among the vectors included in the system are: 1)Brent crude oil price,2)China's investments in fixed assets,3)USA oil production,4)Iran oil production,5)OPEC oil production,6)World economic growth rate increase and 7)World economic growth rate decrease.The choice of the variables is backed up by a number of already existing studies,postulating the importance of every endogenous variable used.According to various information criteria,the VAR system with a lag-order 4 “VAR(4)” was tested out to be stable.The statistics of the model have shown that jointly variables do not significantly influence the movements in spot crude oil price – changes in variables as mentioned above could have explained only 30% of oil price dynamics during the period of 2009-2016.Variance decomposition,impulse response functions,and Granger causality test consistently stated the absence of impact from China's investments,and its relatively small weight among other factors.Also,there is no Granger causality between Brent price and China's investments.Having applied VAR Model and interpreted estimated parameters,we concluded that although China has become a prominent fast-paced emerging market,it has not gained a substantial power to affect the oil market yet.