China’s Overseas Oil Investments and Their Influence on Global Prices

This paper examines the impact of China’s outbound direct investment (ODI) in the oil sector on global oil prices. Unlike existing studies which have focused on China’s oil consumption, this study goes beyond consumption to analyse the effects of China’s oil-ODI on global oil prices. Using data from 2005 to 2023 and applying both cointegrated Vector Autoregression (VAR) and Autoregressive Distributed Lag (ARDL) bounds testing models, the study finds robust evidence of a long-run causal relationship running from China’s oil-ODI to global oil prices, but not vice versa. Specifically, a 10% increase in oil-ODI is associated with a 9% rise in the global oil price index and a 12.5% increase in the real price of West Texas Intermediate (WTI) crude oil. In practical terms, every $1 billion invested in overseas oil production assets corresponds to a 15-point jump in the global oil price index and an $11 rise in WTI prices over the long term, with price adjustments occurring within approximately 17 months in the short-run. Short-run dynamics reveal a dual effect: an initial positive impact followed by a temporary lagged decline, likely reflecting market misinterpretation of investment announcements as global supply expansions. Furthermore, the study confirms that geopolitical shocks, notably the Russia–Ukraine conflict, have positive effects on oil prices. This study underscores the growing influence of state-driven capital flows on global commodity markets, and calls for policymakers and energy economists to embed China’s oil-ODI into their energy markets analytical and policy frameworks.