Are Chinese crude oil futures good hedging tools?

• DOI: 10.1016/j.frl.2020.101514
• Publication Date: 2020-04-25T01:16:57Z
• Authors: Jie LI; Lixin HUANG; Ping LI
• Keywords: Brent Crude; West Texas Intermediate; Crack spread; Oil-storage trade

Abstract Chinese crude oil futures market was launched on March 26, 2018 and became the third largest international crude oil futures market. To check the performance of this new comer, we investigate dynamic correlations between Chinese crude oil futures and spot prices of its two main underlying assets, OPEC and Oman, as well as the hedging effectiveness, accommodating WTI and Brent crude oil futures for comparison. Empirical results show that the correlations and hedging effectiveness of Chinese crude oil futures and spots are quite strong, showing that Chinese crude oil futures market realized its main functions and launching aims.