Research Into The Supportive Role Of Development-oriented Finance In Chinese Crude Oil Pricing

Facing the facts that the world oil production is shifting from the East to the West, while the major part of oil demand is moving from the West to the East, China, as the second largest oil consumer in the world, hasn’t had its own futures market of crude oil yet. China’s oil price is subject to the government control or guidance which makes it inevitable to be directly influenced by the oil prices of Brent of UK North Sea, Dubai and Cinta of Indonesia. As China’s long-term oil import is confronted with "Asian premium", its oil consumption increasingly relies on the outer supply, which means that China’s domestic oil price is considerably affected by the huge international crude oil price fluctuation. This situation greatly increases China’s cost of importing crude oil and the economic cost of urbanization and industrialization. Therefore, China is now facing the serious problem of the security of oil price, for it has no power in the international oil price setting.Nowadays, there are three biggest representatives among global oil futures exchanges, namely, the New York Mercantile Exchange, the Intercontinental Exchange Inc. (ICE) and the Dubai Crude Oil Exchange. These three exchanges together hold the biggest share of oil futures trade and control the international price. Besides, the international crude oil futures, which mainly depends on the speculative hedge funds, has developed for 30 years and already become the biggest commodity futures in a very rapid speed, making the volume of investment several times than the real demand. So this huge market in speculative transactions makes the transactions of virtual oil derivatives go too far from the actual demand of the entity economy, which finally results in severe swings of the international oil price. Moreover, along with the mixture of the oil and financial market, the oil’s financial attribute is more obvious than ever, which means that the oil price has not depended on supply and demand anymore and the problem of oil supply security is gradually turning to be the problem of "price security". At the same time, the fluctuation of the oil futures’price also affects the prices of several international commodities’futures, which finally reflects on the spot price. A series of empirical analysis indicate that the oil futures price is a leading indicator of the oil spot price.To verify the price discovering function of the oil futures, this paper collects the data of WTI oil actuals and futures from January 2000 to September 2015, the consecutive monthly data from the West Texas Intermediate (WTI) futures contracts and the Shanghai fuel oil futures contracts during August 2004 to September 2015. Through the Cointegration test and the Granger Causality Test of the two sets of data, we found that the price of crude oil futures dominates the next day’s opening price of fuel oil futures.Therefore, in order to ensure China’s price security of crude oil, it is extremely important to establish our own oil futures market. We need to put stress on the crude oil futures market which is a new platform to price the global crude oil and make full use of the national background of the development finance and the advantage of the big development bank so that we could apply the development financing theory and various financial functions to build and promote the crude oil futures market. Moreover, we should also apply the development financing theory and various financial functions such as investment, loans, bonds, lease, securities to building and developing the crude oil futures market, for example, Venezuela and Russia, to attract high quality customers to hedge in our crude oil futures market. In this way, we could promote the use of RMB to price the crude oil futures, participant in the international market of crude oil futures, and apply the market-driven system which is a more flexible way to ensuring China’s national oil price security.