The integration of China into the world crude oil market since 1998

The integration of China into the world oil market is an important issue for at least two reasons. First, the influence of the country on the world oil market is dependent on the level of the integration. Second, integration into the world oil market means that China is opening itself up to potential disturbances in the world market and this leads to significant energy security concerns for the country. The aim of this paper is to investigate whether or not China is an integral part of the world oil market. By reviewing the relevant trade and pricing policies of the Chinese government as well as the behavior of the Chinese national oil companies, we find that China is actively engaging itself in the world oil market. Our time-series results show that the Chinese oil price is cointegrated with the major oil prices in the world and a high degree of co-movement between the prices is found. Causality between the price pairs is found to be bi-directional in most cases. The empirical results suggest that China is now an integral part of the world oil market. (C) 2011 Elsevier Ltd. All rights reserved.