Data Analysis and Trend Prediction

This assignment focuses on analyzing a dataset spanning from the year 2000 to 2016. The data consists of numerical values representing various metrics, likely economic or business-related indicators. Students are tasked with identifying trends within these datasets, interpreting the patterns observed, and potentially forecasting future developments based on the identified trends.

TOPIC:
HOW MUCH CONTROL DOES OPEC HAVE OVER THE
PRICE OF CRUDE OIL?

Executive Summary
In this paper, we will examine the degree of control OPEC have over the price of crude oil price…..
Introduction (Overview of the Problem)
The Organization of Petroleum Exporting Countries (OPEC) is one of the biggest oil exporting nations. In
September 1960, OPEC was created in Baghdad by its founding members: Iran, Iraq, Kuwait, Saudi
Arabia and Venezuela. Currently, OPEC Membership group consist a total of 14 Member Countries:
Algeria, Ecuador, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia,
United Arab Emirates and Venezuela. Main objectives of OPEC is to coordinate the petroleum policies of
its members, and to provide member states with technical and economic aid. OPEC aims to manage the
supply of oil in an effort to set the price of oil on the world market, in order to avoid fluctuations that
might affect the economies of both producing and purchasing countries.
The oil market sentiment and prices can be strongly affected by all the decisions made by OPEC and how
they implement it’s deal and agreement with other members. OPEC agreement usually consist setting up
different level of ceiling for individual member’s total production and distributed through a quota system.
Production ceiling is being adjust and change from time to time based on the latest assessment of world
oil market fundamental. However, all members are expected to comply and abide with the agreement
once the ceiling is set. It is important for all members to comply with the agreement as the level of
compliance can strongly influence the price of crude oil. Hypothetically, the higher level of compliance
often resulted in higher crude oil price whereas lower level of compliance usually decrease crude oil price
and leads to more volatility.
This paper will be divided into four parts: Part One. of the paper will outline the hypothesis at the back of
this research analysis. Definition of compliance and formula in how to calculate the rate of compliance
will be discussed in Part Two. Part Three. will testify the assumption behind the analysis by analyse
compliance level during OPEC’s production cut. Part Three. is outline possible alternative cause and
disprove the cause. Lastly, the result will be given in Part Four.

Finding:
1.Hypothesis
- OPEC production’s cut drive crude oil price.
- The compliance rate from all OPEC members and crude oil price have a correlation.
- The decision of compliance level from all OPEC members have an effect on crude oil
price. While compliance level are high, crude oil price are going upward whereas while
compliance level are low, crude oil price are facing downward.
2.Definition of Compliance and Calculation Formula
The following is a formula for compliance rate calculation that we are using for this analysis.
Compliance Rate Calculation = (Total OPEC Crude Oil Production - Total Production Ceiling)
_______________________________________________________
Total OPEC Crude Oil Production
3.Testify the Hypothesis
In order to testify the hypothesis and address the key question “How much control does OPEC have over
the crude oil price?”, we will examine on OPEC’s members actual production level; production ceiling
and compliance rate. Since 1980 until now, OPEC’s has made a decision on production cut in 2016, 2008,
2001, 1998, and 1970s) (Wurzel, Willard and Ollivaud 2009). However, different time period will have
different level of compliance.

Figure 1.
Figure 1. shown a graph of OPEC’s total actual production and total production ceiling during the year of
1980 to 2016. According to the graph, we can see the total actual production level is showing a strong
upward trend. On the other hand, the total production ceiling is showing a downward trend.
Figure 2. (See Appendix for calculation)
As is evident from the above figure, which plots the changes in the nominal price levels of oil and the
compliance rate of the countries simultaneously, there is roughly a positive relation between these two
variables. The overall nominal price levels of oil is seen to be remaining more or less constant with very
moderate fluctuations between 1983 to 1999. The prices however fell a little in the year 2001, with the
level consistently rising after that, the levels reaching a striking high in the year 2008 (Colgan 2014). The
price however fell drastically in 2009 before rising again from the next period. The rise in nominal price
of oil is seen to be consistent till 2013and the price fell moderately in 2014. However, there was a huge
shock in the price levels as the price drastically fell in the year 2015 and till the recent times the nominal
price level of oil is keeping near this relatively lower level (Key and Villarroel).
However, unlike that of the nominal price of oil, which shows substantial fluctuations over time,
attributed to different factors playing in the global oil market scenario, including both the OPEC and the
Non-OPEC players, the compliance rate, as shown in the above figure, has maintained a rough positive

trend with time, barring several exceptions. One of the major drops in the compliance rate in this case,
was observed in 2002, which was also accompanied by a decrease in the nominal price of oil during that
time. In general, before and after this period, the compliance rate has maintained a more or less steady
rise in its trend, the rise being more consistent in the last six to seven years (Griffin and Teece 2016).
However, though in a general framework, the two variables, the compliance rate and the nominal price of
oil have been seen to be broadly related but there are instances of deviation of the former from the latter
in their trends. As can be seen in 2008 and between the time period of 2011 to 2014, the rise in the
nominal prices of oil has been higher than the increase in the compliance rate of the OPEC countries.
On the other hand, during the years 1993, 1994 and 1995, though the compliance rate of the OPEC
countries was rising the nominal price of oil was falling and this trend was observable in few other
instances. Thus, it can be seen from the above figure that though in some cases, the compliance rate has
been increasing , the nominal price of oil has decreased in the same time span, in general the trend of both
the variables are showing roughly an upward movement (Schmidbauer and Rösch 2012).
The decision of cutting the production of oil by the OPEC, as discussed above, did have considerable
impact on the rise in the nominal prices of oil in the years of 1970, 1998, 2001, 2008 and 2016, did have
significant impacts on the nominal prices of oil. However, the changes were not always at par with the
dynamics in the compliance rate of the countries.
Part 4:
There can be several causal factors which may influence the fluctuations in the dynamics of the two
variables, the nominal oil price and the compliance rate, in the instances where they are moving towards
the opposite directions. This section of the report tries to analyze the plausible causes of the concerned
fluctuations and tries to discuss on the basis of the empirical evidences the feasibility of these factors and
their current and future potential to influence the supply and the supply price of oil in the global
framework (Hallwood and Sinclair 2016).
a) Other source of crude oil and natural gas apart from the OPEC countries:
The international oil market, as has been speculated and analyzed by the speculators and the economists,
is currently experiencing huge dynamics due to the entry of new players in the supply side especially.
One of the most notable phenomena in this context is the oil revolution which the United States of
America, is expected be experiencing. Named as the shale oil revolution, this incident portrays the
increase in the production of oil in the country in the recent period, which is not only expected to have
implications on the domestic demand, supply and price, but also on the international oil market.
According to a considerable section of the speculators and economists, this increase in the production of
oil is expected to make the economy of America emerge as one of the game changers in the oil market in
the international market (Kilian 2016). There has also been speculations that in the near future (by 2020)
the United States of America will surpass the productions of even Russia and Saudi Arabia and will
emerge as the biggest oil producer in the world and by the end of 2030 it will even become self-sufficient

and sustaining in terms of energy resources. This is mainly due to the presence of the huge amount of
unused oil reserve in the country.
This expected increase in the supply of oil is also anticipated to have implications on the supply of oil in
the global markets. The projected increase of the oil production from being 1 million per day in 2012 to
about 2 million of barrels per day by the end of 2020, if actually happens in reality, is expected to effect
the oil prices in the international market as the increase in the supply is expected to bring down the oil
prices. This trend is to some extent observed in the falling levels of nominal prices in between the period
of 2015 to 2017, when the compliance rate was surprisingly seen to be high (Mănescu and Nuño 2015).
However, as per the recent research and the empirical evidences, the recent phenomenon of divergence of
the rising compliance rate, in the global oil market, cannot be robustly explained by the increase in the
production of oil in the United States of America, as can be seen from the following figure:
Figure 3: Change in supply of oil over time
(Source: Griffin and Teece 2016)
As can be seen from the above figure, the increase in the shale oil has been to the extent of 1.27 from 1,
between the period of 2012 to 2016. This in the near future is expected to increase to 2 (by 2020) and 3 by
(2025), which after that is projected to remain at that level till 2030. If seen from the perspective of the
contribution of the country in the global oil supply in the recent period, it can be seen that the country has
only contribute d 1% of the global oil supply till 2016. By the year 2020, this is expected to reach to the
level of 2% and to 3% by the end of 2025. There is no increase in the percentage of the same that has
been projected in the above figure. By 2030, the percentage is expected to be only 3%, which is evidently
nominal in the face of the consistently rising demand for oil in the international scenario, both in the
current and in the coming periods. Thus, from the above figure, it is evident that though the shell oil
revolution is being considered by many economists as one of the game changing supply side phenomenon
in the global oil market, it does not show the potential make the USA the primary oil producing country
in the world in the near future period, at least till 2030. This is turn indicates that the nominal contribution
of the country in the global oil supply cannot be the primary reason behind time and again diverging
trends of the compliance rate and the nominal oil price in the global market (Aguilera and Radetzki
2013).

b) Changes in the structure of demand:
There has been the development of a notion that with the increase in the innovations and transformation
in the renewable energy industry, more and more options are evolving, which can potentially be
substitutes for the oil usage in the international market. With the alternative sources coming up and the
concerns regarding the adverse effects of the extensive usages of the fossil fuels on the overall
environmental conditions of the world and the deterioration of the overall quality of life, is expected to
decrease the demand for crude oil and other fossil fuels more and more in the coming years. The countries
are also expected to take steps towards improvising and transforming their energy sector such that in
future the global energy scenario become more sustainable and the problem of global warming can be
averted (Ćosić, Krajačić and Duić 2012).
These measures, if actually get effectively implemented by the countries and if the world is actually
moving owards sustainable energy production and consumption to considerable extent, then as a result of
that the demand for the crude oil in the international market is expected to decrease considerably and
consistently with time. This in its turn, if true, is expected to have implications on the price levels of the
global crude oil and if this assertion is true then much of the unexplained diversions between the rising
compliance rate and the falling oil prices in the current period can be explained. However, the figures and
data evidences does not provide robust support to the above expected outcome:
Figure 4: Supply and demand of oil over the years (Global Market)
(Source: Hallwood and Sinclair 2016)
The above figure shows that the supply as well as the demand for crude oil has been more or less
increasing consistently from the year 2012 till the recent period, barring several exceptions. The demand
for oil, thus, can be seen to be maintaining an increasing trend in spite of the fact that the countries are
moving towards making renewable and eco-friendly energy resources more usable and potential
substitute for the non-renewable oil and fossil fuels.

Thus, it can be seen that many economists and strategists suggest that in the current period as well as in
the coming future, the sustainable energy resources and their proper implementation are expected to pose
as potential replacement for oil and fossil fuel. This in turn is expected to be decreasing the demand for
the latter and lowering the price of the same in the global market. However, the current empirical and data
evidences are not in favor of this assertion. Conversely, the trends in the demand as well as the supply
dynamics in the international oil market shows that in the current as well as in the near future the demand
is not expected to fall considerably.
From the above discussion it is therefore, evident that the changes in the demand structure and preference
pattern in the international oil market, though can be one of the rising events in the international scenario,
is not one of the primary causes behind the fluctuations in the dynamics of the compliance rate and the
nominal prices of oils (Atabani 2012).
c) Instability and Unrest in economies:
The prices of oil are heavily influenced by the supply and demand of the same in the global market,
which in turn is subjected to the political instability, economic and social unrest and war situations in
different economies, especially in the OPEC countries. In this context, the constant political and social
unrest in the Middle Eastern countries are expected to have implications on the demand and supply of oil
in the global framework. On one hand, where the unrest decreases the supply of oil, it also decreases the
demand for oil on part of the international citizens from these countries as the consumers become unsure
of the reliability of these producers. Thus, the fall in the demand can lead to a drastic fall in the prices of
crude oil.
However, these unrests are temporary by nature and though they do have effects on the global dynamics
on oil prices and make fluctuations in the same, this can be considered temporary cause and not one with
long term implications on the price levels of the crude oil in global scenario (Baffes et al. 2015).
Thus, it can be asserted from the above discussion that the above factors, though may have small and
short-term effects on the oil prices and may cause temporary deviations in the oil prices from the
compliance rate, these are not considered to be primary causal factors. The regulatory decisions of OPEC
have significant implications on the price levels of oil as can be seen from the effects of the decision of
production cut of the OPEC on the contemporary oil price dynamics.

References
Wurzel, E., Willard, L. and Ollivaud, P., 2009. Recent oil price movements: forces and policy
issues. OECD Economic Department Working Papers, (737), p.0_1.
Colgan, J.D., 2014. The emperor has no clothes: The limits of OPEC in the global oil
market. International Organization, 68(3), pp.599-632.
Key, R. and Villarroel, C., Domestic impact of production cuts in OPEC countries: The cases of Nigeria
and Venezuela.
Griffin, J.M. and Teece, D.J., 2016. OPEC behaviour and world oil prices. Routledge.
Schmidbauer, H. and Rösch, A., 2012. OPEC news announcements: Effects on oil price expectation and
volatility. Energy Economics, 34(5), pp.1656-1663.
Hallwood, P. and Sinclair, S., 2016. Oil, debt and development: OPEC in the Third World. Routledge.
Kilian, L., 2016. The impact of the shale oil revolution on US oil and gasoline prices. Review of
Environmental Economics and Policy, 10(2), pp.185-205.
Mănescu, C.B. and Nuño, G., 2015. Quantitative effects of the shale oil revolution. Energy Policy, 86,
pp.855-866.
Aguilera, R.F. and Radetzki, M., 2013. Shale gas and oil: fundamentally changing global energy
markets. Oil and Gas Journal, 111(12), pp.54-61.
Ćosić, B., Krajačić, G. and Duić, N., 2012. A 100% renewable energy system in the year 2050: The case
of Macedonia. Energy, 48(1), pp.80-87.
Atabani, A.E., Silitonga, A.S., Badruddin, I.A., Mahlia, T.M.I., Masjuki, H.H. and Mekhilef, S., 2012. A
comprehensive review on biodiesel as an alternative energy resource and its characteristics. Renewable
and sustainable energy reviews, 16(4), pp.2070-2093.
Baffes, J., Kose, M.A., Ohnsorge, F. and Stocker, M., 2015. The great plunge in oil prices: Causes,
consequences, and policy responses.

Appendices
Annual Average Crude Oil Production, Total OPEC Total production celling Compliance rate
(Thousand Barrels per Day)
1,983 16,718 21,916 -31%
1,984 16,653 21,978 -32%
1,985 15,539 22,040 -42%
1,986 17,753 23,650 -33%
1,987 17,886 22,436 -25%
1,988 19,900 24,200 -22%
1,989 21,615 25,005 -16%
1,990 22,768 25,321 -11%
1,991 22,716 25,638 -13%
1,992 24,028 25,954 -8%
1,993 24,782 22,102 11%
1,994 25,210 22,164 12%
1,995 25,870 22,226 14%
1,996 26,389 23,650 10%
1,997 27,697 22,436 19%
1,998 28,781 24,200 16%
1,999 27,632 26,271 5%
2,000 29,427 26,587 10%
2,001 28,581 26,903 6%
2,002 26,929 27,220 -1%

2,003 28,425 22,288 22%
2,004 31,036 22,350 28%
2,005 32,526 22,412 31%
2,006 32,187 23,650 27%
2,007 31,944 22,436 30%
2,008 33,308 20,977 37%
2,009 31,609 20,248 36%
2,010 32,500 19,519 40%
2,011 32,672 18,790 42%
2,012 33,859 18,061 47%
2,013 32,890 17,331 47%
2,014 32,935 16,602 50%
2,015 34,190 15,873 54%
2,016 35,170 15,144 57%