Economics Assignment: Global Trade and Market - Oil Price & GDP Study

This economics assignment investigates the relationship between oil prices and the GDP of oil-producing countries, specifically Russia and Saudi Arabia. The study formulates a hypothesis that GDP influences oil prices and provides justification by referencing existing literature on the global oil market and emerging economies. The analysis employs regression analysis using data from 2000 to 2018, collected from the World Bank and Trading Economics, to test the hypothesis. The results reveal a positive correlation, with the GDP of both countries influencing oil prices, although the extent of the impact varies. The report concludes that GDP is an important determinant of oil prices, particularly in Russia, while acknowledging the influence of OPEC+ in Saudi Arabia. The R-squared values from the regression analysis are presented to support the findings and reject the null hypothesis.

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ECONOMICS ASSIGNMENT
GLOBAL TRADE AND MARKET

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Contents
Introduction................................................................................................................................3
Hypothesis..................................................................................................................................3
Justification................................................................................................................................3
Data analysis..............................................................................................................................4
Conclusion..................................................................................................................................5
Reference....................................................................................................................................6

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Introduction
Oil is one of the most important non renewable resources of the world and it decides the
global power of the world economy. There are many oil producing countries in the world that
captures the world oil market and hence enjoy the royalty. Two of them are Russia and Saudi
Arabia which supplies around 27% of the oil demand of the world. The objective of this
paper is to examine the hypothesis of whether the price of oil depends on the GDP of that
country. The data analysis will be used to test the hypothesis along with the justification of
the data analysis.
Hypothesis
The null hypothesis of the research is
Ho: GDP does not influence the price of oil set by different countries
The alternative hypothesis is
H1: GDP influence the price of oil set by different countries
Justification
Basher et al. (2018) stated that emerging economies of the world are crucial to the world
market of oil. These emerging economies shows a rise in the demand for oil from one period
to the another period. Therefore, the GDP of the countries play a huge role in pushing up the
oil prices benefitting the oil producing nations of the world. Nyangarika (2018) noted that oil
prices have macroeconomic implications for the economies that further allow the economy to
grow at a greater pace which in turn can boost the oil price. Razek et al. (2019) on the other
hand stated that, oil price is vulnerable to the changes in the economic activity of the world
economy and the individual countries due to the low elasticity of demand for oil. However,
studies have shown that the vulnerability of the oil related to the GDP of the countries have
reduced over the years due to the emergence of other resources such as solar power.
Studies also show the relationship from the other side as well. That means the GDP also
pushes the oil prices up. However, it does not work for the countries that falls under the
category of developed. GDP growth rate increases the living standard and the income level of
the customers of the market that further increases the demand for oil. Due to the forces of the

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supply and the demand the oil price increases (Balmaceda, 2016). Therefore, the oil prices
quoted by different oil producing nations depend on and influence the GDP of the country.
Data analysis
For the analysis of the research topic and to test the hypothesis, two variables for each of the
countries will be used. Here the GDP of the countries will be the independent variable and
prices of oil will be the dependant variables. The data has been collected for the years
between 2000 and 2018. The data for the GDP will be collected from the World Bank and the
data regarding the prices of oil charged by Russia and Saudi Arabia will be collected from the
websites of trading economics. The regression analysis will be used to analyse the data
collected and if the GDP of the countries explain the changes in the prices, the null
hypothesise will be rejected. For example, if the data of Russia and Saudi Arabia shows that
GDP of their respective economies explain the changes in the prices that mean the oil price
depend significantly on the GDP of the respective countries.
Result of the regression analysis
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.906102
R Square 0.821022
Adjusted R Square 0.810493
Standard Error 0.113466
Observations 19
ANOVA
df SS MS F Significance F
Regression 1 1.004006 1.004006 77.98353 9.27E-08
Residual 17 0.218868 0.012875
Total 18 1.222874
CoefficientsStandard Error t Stat P-value Lower 95%Upper 95%Lower 95.0%Upper 95.0%
Intercept 0.208161 0.056914 3.657484 0.00195 0.088083 0.328238 0.088083 0.328238
GDP 3.55E-13 4.02E-14 8.830829 9.27E-08 2.7E-13 4.4E-13 2.7E-13 4.4E-13
Table 1: The regression analysis of Russia
(Source: Developed by the learner)

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SUMMARY OUTPUT
Regression Statistics
Multiple R 0.498258
R Square 0.248261
Adjusted R Square0.204041
Standard Error0.039189
Observations 19
ANOVA
df SS MS F Significance F
Regression 1 0.008622 0.008622 5.614243 0.029916
Residual 17 0.026108 0.001536
Total 18 0.03473
CoefficientsStandard Error t Stat P-value Lower 95%Upper 95%Lower 95.0%Upper 95.0%
Intercept 0.256335 0.022578 11.35355 2.34E-09 0.208701 0.303969 0.208701 0.303969
GDP -1E-13 4.22E-14 -2.36944 0.029916 -1.9E-13 -1.1E-14 -1.9E-13 -1.1E-14
Table 2: The regression analysis for Saudi Arabia
(Source: Developed by the learner)
The analysis shows that in both cases of Russia and Saudi Arabia shows that some part of the
prices of the oil is influenced by the GDP of that country. The R square value in case of the
Russia is 0.82 which means that the changes in the price of oil are 82% explained by the GDP
of the country. On the other hand the R square for the case of Saudi Arabia is 0.24 which
means that only 24% of the changes in the price is explained by the GDP of the country.
However the common thing is that the GDP influences the price. The impact of GDP in case
of Saudi Arabia is low mainly due to the cooperation among the other oil producers in the
gulf area. Thus, null hypothesis is rejected and alternative hypothesis accepted.
Conclusion
Therefore, the paper finds out that GDP is an important determinant of the oil price for both
Russia and Saudi Arabia. The R square value shows that the price is influenced by the GDP
of the countries however the extent of the impact is not same for both the cases. In case of
Saudi Arabia the impact of the GDP is lower as the price here is mainly determined by the
cartel of oil producers.

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Reference
Balmaceda, M.M., 2016. Douglas Rogers, The depths of Russia: oil, power, and culture after
socialism.
Basher, S.A., Haug, A.A. and Sadorsky, P., 2018. The impact of oil-market shocks on stock
returns in major oil-exporting countries. Journal of International Money and Finance, 86,
pp.264-280.
Nyangarika, A.M., 2018. Correlation of oil prices and gross domestic product in oil
producing countries.
Razek, A., Noha, H., Michieka, N. and Delfino Silva, E., 2019. OPEC+’s' Reasonable Oil
Price Level'Notion and the External Breakeven in Saudi Arabia, Russia and Canada:
Accounting for Economic Cycles and Pipeline Politics.