In this work, we study statistical arbitrage strategies in international
crude oil futures markets. We analyse strategies that extend classical pairs
trading strategies, considering the two benchmark crude oil futures (Brent and
WTI) together with the newly introduced Shanghai crude oil futures. We document
that the time series of these three futures prices are cointegrated and we
model the resulting cointegration spread by a mean-reverting regime-switching
process modulated by a hidden Markov chain. By relying on our stochastic model
and applying online filter-based parameter estimators, we implement and test a
number of statistical arbitrage strategies. Our analysis reveals that
statistical arbitrage strategies involving the Shanghai crude oil futures are
profitable even under conservative levels of transaction costs and over
different time periods. On the contrary, statistical arbitrage strategies
involving the three traditional crude oil futures (Brent, WTI, Dubai) do not
yield profitable investment opportunities. Our findings suggest that the
Shanghai futures, which has already become the benchmark for the Chinese
domestic crude oil market, can be a valuable asset for international investors