Abstract
This study investigates whether the relationships between China's exchange rate, domestic crude oil price, and the international crude oil price have a switch in the period before and after China's crude oil futures launched by Shanghai International Energy Exchange (INE) using the MS-VAR model. We find that, although China's oil price is strongly influenced by the international crude oil market, its effect on the international crude oil price is weak; Since the launch of INE crude oil futures in the new regime, the fluctuations in the US dollar against the RMB (USD/CNY) exchange rate has had a significant positive effect on China's crude oil prices. Placebo test results demonstrate that the launch of Brent or Oman crude oil futures, which are US dollar-dominated, do not have the same effects as the launch of INE crude oil futures. This implies that the positive impact of the USD/CNY exchange rate on the INE crude oil futures price may be transmitted to China's crude oil spot market.
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