Research On The Spillover Effect Of China’s INE Crude Oil Futures Market

Crude oil is a vital strategic resource for modern countries.China has long been accompanied by the increasing dependence on crude oil imports but the long-term lack of crude oil pricing power.Meanwhile,under the petro-dollar system,China is deeply affected by the exchange rate risk caused by the US dollar settlement of international crude oil trade.On March 26,2018,China launched its first international crude oil futures on the Shanghai International Energy Exchange(INE).The RMB(Yuan)denominated oil futures is expected to help China and even Asia strive for the pricing power of crude oil trade.It is also regarded as an important tool for China to deal with the exchange rate risk of crude oil trade.The direction and strength of the spillover effect between cross-market oil prices is an important basis for judging the influence of crude oil pricing,and the spillover effect between oil price and exchange rate can reflect the asset-currency relationship formed by the choice of pricing currency.In view of this,this article focuses on the spillover effects between INE crude oil futures,international crude oil prices,domestic crude oil prices and the US dollar against the RMB(USD/RMB)exchange rate.Firstly,a theoretical model was established to derive the interaction among INE crude oil futures,domestic crude oil prices,international crude oil prices and the USD/RMB exchange rate.Secondly,the SV-TVP-SVAR model was utilized to empirically analyze the time-varying mean spillover effect among INE crude oil futures prices,international crude oil prices,domestic crude oil spot prices,and USD/RMB exchange rates.Thirdly,the MS-VAR model and the threshold regression model were used to empirically analyze whether the spillover effect produced by the launch of INE crude oil futures has an impact on the domestic and foreign oil price-exchange rate mean spillover relationship.Through comprehensive theoretical and empirical analysis,this article draws the following main conclusions:(1)INE crude oil futures and domestic crude oil spot showed a close spillover relationship over the same period,but it does not has a significant and stable spillover effect on international crude oil prices,which means the launch of INE crude oil futures did not strengthen China’s crude oil pricing power significantly.(2)The USD/RMB exchange rate has a positive spillover relationship with INE crude oil futures,which is different from the negative spillover relationship between the USD/RMB exchange rate and international crude oil prices.The positive spillover of INE crude oil futures denominated in RMB may be transmitted to the domestic spot market through the spillover effect of INE crude oil futures.(3)After the launch of INE crude oil futures,the USD/RMB exchange rate has generated a continuous and significant positive spillover effect on China’s crude oil prices,and INE crude oil futures trading volume has a threshold effect on this impact.The placebo test showed that the RMB denominated price is the key factor causing this effect.