Have the Chinese crude oil futures prices made a progress towards becoming the regional oil pricing benchmark? Empirical analysis from the asset pricing perspective

This study evaluates whether the newly-launched Chinese crude oil futures (SC) satisfy the essential criterion as the Asian oil pricing benchmark, i.e., SC prices should effectively reflect the macroeconomic fundamental information of this region. According to the asset pricing theory, if SC satisfies this criterion, SC prices are able to forecast the relevant macroeconomic activities of Asian countries in time-series and meanwhile have cross-sectional pricing effects in the associated stock markets. We concentrate primarily on China, a representative oil consumer in Asia, to conduct empirical tests. We find that SC returns have a particularly prominent predictability for the chosen macroeconomic variables (i.e., industrial growth) of China and that the Chinese stocks with higher exposures to SC returns correspond to significantly higher expected returns; moreover, the results based on SC returns are more pronounced than those based on other (international) oil returns. We also revisit the above analyses for the other oil consumers in Asia (e.g., Japan, Korea, India, Singapore) and find a similar result in Japan. Overall, our findings corroborate that SC prices have successfully revealed the regional macroeconomic information and thereby made a significant progress towards becoming the Asian oil pricing benchmark.