Price discovery in China's crude oil futures markets: An emerging Asian benchmark?

We examine the price discovery performance of China's crude oil futures traded on the Shanghai International Energy Exchange (INE) for the spot prices of 19 types of deliverable and nondeliverable Asian crude oil. We find evidence for the INE crude oil futures price discovery function even at the early stage for almost all the deliverable crudes and some nondeliverable crudes. Both the INE crude oil futures price and the spot price significantly contribute to the price discovery process, with substantially time-varying informational roles. While the price discovery performance was severely damaged around the period of COVID-19 pandemic shock intensification in China with the temporary cancellation of nighttime trading, it improved to some extent after China started the recovery from the shock. But such improvement deteriorated drastically and disappeared since early 2021. Further analysis reveals that both economic fundamentals (e.g., the warehouse inventory) and trading-related characteristics of the futures market are significant determinants of the price discovery performance. The overall findings imply that the INE crude oil futures market has evolved into a useful and important information source in pricing Asian crudes, and is on the path to emerge as an Asian benchmark.