The impact of WTI futures on Shanghai crude futures: identifying spillover effects on crude oil prices using the multiplicative error model

Purpose – Thisstudy quantifies volatility spillovers between WTI and INE, assessing their time-varying nature and INE’s sensitivity to external shocks. It evaluates INE’s integration with global markets and its role as a regional benchmark, offering insights into emerging energy markets’ resilience. Design/methodology/approach – This study examines the volatility spillover dynamics between WTI and Shanghai (INE) crude oil futures launched in 2018 to establish a regional benchmark and stabilize China’s currency. Using high-frequency data, a Multiplicative Error Model (MEM) quantifies spillovers, while a Markov-switching extension captures regime-dependent effects across the pre-pandemic, pandemic (2020–2021), and post-COVID phases. Robustness checks control for geopolitical risks (e.g. US–China tensions) and RMB exchange rate fluctuations. Findings – The results show unidirectional spillovers from WTI to INE, with no reverse effect, highlighting WTI’s dominance. Spilloversintensify during high-volatility regimes, peaking during the pandemic but declining post-COVID. INE demonstrates resilience to geopolitical and currency risks, reflecting its regional focus. The Markov-switching framework confirms regime-dependent spillovers, indicating a structural market shift. Originality/value – This study pioneers the use of MEM with Markov-switching to analyze WTI–INE spillovers, challenging static assumptionsin prior research.It provides practical insightsfor Asian policymakers and investors, clarifying INE’s role as a regionally focused yet globally influenced contract. INE’s insulation from non-energy risks offers novel perspectives on the stability of emerging energy markets, informing risk management in poverty-dependent economies.