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Understanding the Crude Oil Price: How Important Is the China Factor?

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  • Xiaoyi Mu
  • Haichun Ye

Abstract

This paper employs monthly data on China’s net oil import from January 1997 to June 2010 to assess the role of China’s net import in the evolution of the crude oil price. Based on a vector autoregression (VAR) analysis, we find that the growth of China’s net oil import has no significant impact on monthly oil price changes and there is no Granger causality between the two variables. The historical decomposition indicates that shocks to China’s oil demand have only played a small role in the oil price run-up of 2002-2008. We also calculate the price changes implied by China’s net oil import growth from a longer-term supply and demand shift perspective. doi: 10.5547/ISSN0195-6574-EJ-Vol32-No4-4 “Surging Chinese demand is underpinning the recent spike in the price of oil, figures from the International Energy Agency (IEA) show. This ‘China factor’ has more bearing on oil prices than the ‘risk factor’ coming from global tensions, some experts say†—CNN (2004) “The price of crude oil could soar to $200 a barrel in as little as six months, as supply continues to struggle to meet demand . . . Soaring global demand for oil is being led by China’s

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  • Xiaoyi Mu & Haichun Ye, 2011. "Understanding the Crude Oil Price: How Important Is the China Factor?," The Energy Journal, , vol. 32(4), pages 69-92, October.
    • Handle: RePEc:sae:enejou:v:32:y:2011:i:4:p:69-92
    DOI: 10.5547/ISSN0195-6574-EJ-Vol32-No4-5
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    References listed on IDEAS

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    1. Krichene, Noureddine, 2002. "World crude oil and natural gas: a demand and supply model," Energy Economics, Elsevier, vol. 24(6), pages 557-576, November.
    2. Clark, Todd E. & West, Kenneth D., 2006. "Using out-of-sample mean squared prediction errors to test the martingale difference hypothesis," Journal of Econometrics, Elsevier, vol. 135(1-2), pages 155-186.
    3. James L. Smith, 2009. "World Oil: Market or Mayhem?," Journal of Economic Perspectives, American Economic Association, vol. 23(3), pages 145-164, Summer.
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    1. Markus Brueckner & Haidi Hong & Haiyan Lin & Joaquin Vespignani, 2025. "Effects of Government Regulation of Diesel and Petrol Prices on GDP Growth: Evidence From China," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 58(4), pages 299-315, December.

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