Research On The Hedging Effect Of INE Crude Oil Futures On Chinese Crude Oil Spot

Crude oil is an important reserve resource of modern industry.Many countries including OPEC have been competing in crude oil market for many years since the oil well exploration and production technology have been improved.Based on the universality of its use and the special dual attributes of commodity and finance,the price fluctuation of crude oil market has dynamic spillover effect on capital market and commodity market.Therefore,hedging oil price risk is a key point that can not be ignored for oil related industry investors and other investors across the world.In 1993,China became a net importer of crude oil.Since then,total crude oil imports have increased year by year,and the imbalance between supply and demand in the domestic crude oil market has also been worse.So far,Chinese dependence on imported crude oil has even exceeded 70%.However,China has a very weak voice in the pricing of crude oil market,which is related to the lack of Chinese crude oil futures market before 2018.Today,the pricing of Chinese crude oil market is mainly linked to the benchmark price of international crude oil futures.Therefore,before the launch of Chinese crude oil futures,Chinese crude oil related industries mainly relied on Brent crude oil futures and WTI crude oil futures for hedging purpose.In fact,the crude oil in Chinese spot market is mainly medium sulfur crude oil,which is quite different from Brent and WTI crude oil.On the contrary,INE crude oil futures launched in 2018 fits better with Chinese crude oil spot market.So theoretically,it is more practical to build a hedging scheme with INE crude oil futures.In this paper,INE crude oil futures is the main research object.Daqing crude oil spot and Brent crude oil futures are the representative of Chinese crude oil spot and international crude oil futures in order to verify the hedging effect of INE crude oil futures.In addition.this paper introduces the portfolio hedging scheme of two crude oil futures and compares hedging ratios of three hedging strategies according to the minimum variance hedging theory.At the same time,ECM error correction model and ECM-DCC-GARCH dynamic hedging model are selected to judge the hedging effect of three hedging schemes from the static and dynamic dimensions.In addition,disputes between Russia and OPEC over production reduction agreements in the late 2019 has caused a shock to the crude oil maekets.And coronavirus pandemic also spread rapidly.Crude oil prices are volatile and the risk of price has increased dramatically.In this case,the sample is divided into two periods.The effectiveness of hedging ratio of three hedging schemes is verified respectively.The empirical results show that INE crude oil futures performs significantly better than the Brent crude oil futures when the fluctuation range of crude oil market price is relatively stable.But when the crude oil market fluctuates violently and the uncertainty increases.the hedging effect of Brent crude oil futures is more better than that of INE crude oil futures.However,the hedging effect of the portfolio hedging strategy is both the best Therefore,compared with Brent crude oil futures,INE crude oil futures has better hedging effect on Chinese crude oil spot,but the ability in the response to the uncertainty is relatively weak.In a word,the effect of the portfolio hedging strategy has been outstanding in both periods.China's crude oil related industries can consider constructing a portfolio hedging scheme to hedge risks.