An investigation into the dynamic relationship between international and China’s crude oil prices

Hing Lin CHAN*, Kai Yin Woo

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

9 Citations (Scopus)

Abstract

This article studies the dynamic relationship between international (WTI, Brent and Dubai) and domestic (Da Qing) crude oil prices in China using threshold cointegration method. We find evidence of a long-run equilibrium relationship between each pair of international and Da Qing oil prices, favouring the market integration hypothesis. We also estimate asymmetric adjustments under the momentum threshold autoregressive (M-TAR) specification in a TVECM, and the results show that adjustments to eliminate disequilibrium happen faster when oil price spread increases than when it decreases. The long-run and short-run Granger causality tests support the notion that China has influence on the international oil markets. The results imply that China should open up its domestic and imported oil markets, and also establish a well-functioning crude oil futures market, as they are essential for arbitrage and hedging strategies.

Original languageEnglish
Pages (from-to)2215-2224
Number of pages10
JournalApplied Economics
Volume48
Issue number24
DOIs
Publication statusPublished - 1 Jan 2016

Scopus Subject Areas

  • Economics and Econometrics

User-Defined Keywords

  • Arbitrage
  • Crude oil prices
  • M-TAR model
  • Threshold cointegration

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