Is the Chinese Crude Oil Spot Price a Good Hedging Tool for Other Crude Oil Prices, and in Special for the Main Russian Oil Benchmarks and During International Sanctions?

Abstract

[Abstract] In order to deal with risk management for policy makers and potential and current investors, green bond, bitcoin and several precious metals have been proposed as safe heavens and hedges for WTI and BRENT. We show that the Chinese DAQ spot crude oil price can also be used as a hedging tool for several main benchmark oil prices such as WTI, BRENT, OMAN and in special for Russian oil indexes such as ESPO and URAL. We find that when new international sanctions to the Russian oil are announced, in general the hedge property of DAQ decreases or is not affected. However, the hedging property of the DAQ increases very significantly due to public announcements of events that are beneficial for China to increase oil imports; specially when Russia announces important increases in its oil production or there are international sanctions and price caps on seaborne Russian crude or oil products and it is publicly known that Chinese buyers obtain Russian oil at steep discounts avoiding sanctions. We show then that hedging property depends on when international sanctions are effective, or when existing sanctions are publicly known to be easily avoided by China.