The Fluctuation Of International Crude Oil Market In View Of US Factors And Its Impacts On China’s Economy

Since China became net oil importer in 1993, our oil imports has been increasing and oil import dependence has been continuing to rise. In the year of 2014, China’s import dependence on oil reached 59.6%, which indicates that China has become the world’s largest importer of crude oil. Under such circumstances, the volatility of international oil market brings huge challenges for our country economy as well as the government’s macro-control. The international oil price has been growing up from 2006 to 2008. To deal with serious inflation pressures, China’s central bank has raised the deposit reserve ratio for 18 consecutive times, and raised the benchmark interest rate for 7 times. With the reversal of oil prices at the end of 2008, our country’s inflationary pressure dropped, speed of economy growth declined, the government was forced to lower the deposit reserve ratios and benchmark interest rates simultaneously for 4 times within 3 months. After the year of 2010, the price of international oil rebounded quickly to above 100 dollars a barrel, which increased inflationary pressure in our country. Faced with such situations, the central bank had to raise the deposit reserve ratio and the benchmark interest rates for 12 and 5 times respectively. After mid-2012, the international oil price declined gradually, especially there came about a collapse since June,2014. The PPI index lasted a negative growth for a period of 42 months, thus maintaining growth speed and anti-deflation became the subject of macroeconomic regulation once again. In summary, China’s economy regulatory policies are forced to change frequently due to international crude oil price spiking, which deviates the request for a smooth economy running.The fluctuation of international oil price is so important for China, and what is the reasons that make it fluctuate so violently. Although Hamilton et al have stressed that China’s huge oil import demand is the main reason for the oil price bubble and rapid rebound during the period of 2006-2008 and 2010-2011, Kilian et al have believed that the direct demand of crude oil isn’t the main cause of oil market volatility. They claimed that the derivatives speculation, dollar liquidity, shale oil and other new energy factors are more important,in which respects the United States plays a more fundamental role. China is a major importer of crude oil, but the decisive factors influencing international oil market remain in the United States, that is to say, American factors affect the oil market fluctuations, and then the fluctuations transfer to China’s economy, finally affecting chain of impacts of China’s macroeconomic policies. Therefore, there are important practical significances in the study of American factors and effects in Chinese economy of the international oil market fluctuations.On the one hand, the research of regular pattern of American factors affecting the oil market and the dynamic characteristics can provide empirical support for the analysis and prediction of the crude oil market trends.On the other hand, we conduct researches about heterogeneity of the impacts on China’s economy resulting from oil price shockstypes related to American factors, which can enhance directions and scientific of our country’s energy strategy and regulatory policies.Specifically, this paper contains the following main sections:Based on the global economic system models,chapter 3 analyze the impacts of various country variables on international oil market.The empirical results find that financial variables have the most important significances in oil market fluctuations and the influence has strengthened in recent 20 years, which reflects the financial trend in international crude oil market. The study also finds that entity demands have important influences on oil market fluctuations and the effects have enhanced in recent 20 years. However, the prices and quantities of crude oil have faster decreasing influences by its own, which indicates that the degree of endogenous economic and financial conditions has strengthened in crude oil market. The influences of oil exporters and importers have declined and increased respectively. American factors have the most significant impacts in international crude oil market, which provides empirical supports for researches in oil fluctuations in view of the US.Chapter 4 discussed four channels American Factors affecting international oil prices. UsingTVP-SVAR models, we find that the expansion of the Fed’s asset size triggered a depreciation of the dollarduring the quantitative easing period, thus contributing to the rebound in oil prices. In the contrast, during the period of non-quantitative easing period, the effects of the same asset expansion are opposite. In the channel of alternatives, shale oil production forms an important alternative to traditional energy sources, significantly reducingthe net imports of crude oil in the United States. Pressure on oil prices continued to strengthen after 2011, which has become one of the major driving factors of the international crude oil price cut from June,2014. In derivatives channels, the negative impacts of lowering oil pricesand speculation spreadare significantly resulting from the rising of the federal funds rate in the Bear Market, while the impacts are limited in the Bull Market. In entity demands channels, there exist obvious correlations between intensity of impact on oil pricesdue to US industrial outputs and the economic cycles. Destocking effect of crude oil weakened gradually after 2009, and the declining effects of inventory on oil prices strengthened.Chapter 5 explores the impacts of American factors on crude oil production from the perspective of opportunity costs. According to Hotelling-Solow law regarding to exhaustible resource extraction theories, this paper treats US financial assets investment benefits as opportunity costs of delaying crude oil of the Middle East oil producers. Specifically, this chapter design models of opportunity cost of delaying crude oil in the Middle Eastern countries, which bases onthe 10 variables, such as long-term US Treasury interest rates, stock indices, US debts held by the Middle East countries, US stocks scale, etc.The empirical results show that an increase of benefits from American financial assets will stimulate thequantity of US debts and stocksheld by the Middle East countries, ultimately increasing their oil production motives. In comparisons, the impacts ofopportunity costs are indirect, but the effects of oil production in the Middle East have exceeded one third of impacts of global economy demand shocks and half of derivatives speculative demand shocks.With the importance of Middle East oil producers attach to value-added benefits of sovereign wealth funds, factor of opportunity cost shocks cannot be ignored in the research about supply of oil producers. Moreover, opportunity costs canbetter explain the reasons for different production policies adopted by OPEC faced with oil prices plummeted in November 2008 and November 2014.Chapter 6 analyzes the linkage between WTI and our domestic oil prices, and compares different impacts on China’s macroeconomic from views of the US economy expansion, US derivatives speculation, and OPEC crude oil supply shocks.Theresults of Granger causality test show that WTI is the Granger cause of domestic oil prices, which is invalid in the opposite. The results of impulse response indicate that OPEC supply shocks contribute to suppression of the Chinese output growthin the short-term, while US economic expansion stimulates a production increase significantly instead, and the US derivatives speculative attack also has a similar but relatively weaker degree of short-term effect.RMB exchange rates havedifferent degrees of positive response tooil prices rose by the above three causes. Chinese Stock Index hasdifferent degrees of negative response to the US economy expansion and crude oil supply shock, but no clear response to the US derivatives speculative attacks.Chapter 7 explores the conduction characteristics of WTI futures price shocks in various sectors in China. Specifically, based on data of investments in fixed assets, prices and added value from January 2006 to March 2015, this paper investigates how the WTI transmit to the above three indicators in various industries by means of flow relationship of "input-output".The empirical results show that WTI price shocks contribute to a general rise in the price level of various industries, besides, the shocks impact the resource industries and part of heavy industries greatly and cannot transmit to most of downstream industries completely. Instead of causing widespread contraction in various industries during the sample period, WTI price shocks stimulate an increase of investment in fixed assetsin most industries, which indirectly indicate that characteristics are significant resulting from demand factors leading to oil shock in sample period. Nearly part of the added value of industry have positive responses to WTI price shocks, especially for coal industry. Besides, RMB appreciation hedge the actual impacts of WTI prices rise objectively, easing price pressures in non-real estate industry at the same time.Compared with previous studies, the innovations of this paper are as follow.In this paper, the latest development researches of VAR models are systematically applied to the analysis of interactions of international crude oil market, real economy, and financial variables. With the advantages of Global VAR, TVP-SVAR and Sign VAR, the empirical study of this paper is based on considerations of economy system, time-varying characteristics and idiosyncratic shocks, which makes the foundations of models are more reliable and the results provide more comprehensive information.In view of research angle and context, this paper focuses the conduction channel that American factors affect the oil market fluctuations, and then the fluctuations transfer to China’s economy.In this paper, four conduction channels have been refined and the time variant features of each channel has been studied accordingly, while previous studies mainly emphasize certain kind of them. This paper also studies the positive impacts of revenues of US financial assets on the incentive for producing more crude oil currently based on opportunity cost perspective, which is ignored in previous empirical researches. Differently from many empirical studies, which model oil price shock and china’s macro-variables directly, this paper discriminates patterns of impacts of oil price shocks on china’s macroeconomy caused by different American factors and other causes such as OPEC’s crude oil production and captures conduction characteristics of WTI among the industries of china based on input-output table.Finally, this paper also finds several important empirical conclusions which previous studies ignored or do not explored especially. In the global economic system models, although the influence of china’s factors on fluctuation in international crude oil market, the comprehensive power still falls behind of American factors’ significantly. American’s monetary expansion has the opposite effects on crude oil price transferred by dollar currency rate during the QE period and non QE period. As an important opportunity cost, the increase of revenues in US financial market enhances incentives for producing more crude oil, which provides new empirical support for Hotelling-Solow rule. Moreover, increases of crude oil price caused by different factors make different influences significantly and investment, prices, added value of each industry exhibits divest impacts features transmitted by among input-output table, which indicates we should take more pertinent coping strategies facing crude oil shock.