Question

three predictions of oil regime complex.
needed clear and important scenarios (positive neutral and negative).

Answer 1

Answer - Oil(Petroleum) is the pillar of the bulk commodities. In addition to its basic commodity attributes, petroleum has strong special financial and political attributes. In past decades, international crude oil prices experienced significant ups and downs and attracted extensive attention across the academic and industrial communities.The drastic fluctuations of international crude oil prices could have played an important role in national economic power.Moreover, with the rapid development of China’s economy, it has become the second largest oil consumer and the third highest oil-importing country in the world. Its dependence on imported oil exceeds 65%.Therefore, it is necessary to make a comprehensive and systematic review and qualitative and quantitative analysis of all factors affecting the international oil price fluctuation and to forecast crude oil price as accurately as possible. It is of real and direct significance for the China Petroleum and Chemical Corporation (Sinopec) to be able to cope with the fluctuation of international crude oil prices and to ensure oil security and procurement.

Positive - If we see the era of 1990's due to the Iraqi invasion of Kuwait, the United Nations put a total embargo of oil exports from Iraq and Kuwait. The outbreak of Gulf War and the United Nations embargo led directly to a reduction in crude oil supply by 4.7 million barrels/day in the international oil market, which was 7% of the global aggregate demand at that time (Yan 2012). Following this, the international Brent oil price rose from $19.59 per barrel in February 1990 to $35.03 per barrel in October 1990.However, thanks to the timely increased production in OPEC countries, the supply shortage of 3 million barrels per day in this oil crisis was quickly supplemented.

So, compared with the previous two crises, the fluctuation of international oil price brought by this oil crisis didn’t last too long and didn’t have a substantial impact on the world economy. After this crisis, oil prices fell back to the low level of before the war, i.e., $19.22 per barrel. From 1997 to 1998, the strong impact of the Asian financial crisis on world economy (according to IMF, the economic growth in 1998 was only 2.8%) and oil demand in 1997, the international Brent oil price dropped continuously and fell to $10 per barrel, historically low levels, in December 1998. Afterward, due to the three times underproduction implemented by OPEC, the international oil price quickly rose to around $25 per barrel at the end of the year 1999. Throughout 1990s, oil prices fluctuated smoothly, which basically maintained the range from $10.19 per barrel to $35.03 per barrel.

In the 21st century, there were some new features in the international crude oil market, including the increasing globalization of the oil market, the rapid growth of oil demand in non-OECD countries and the strengthening in the financial attributes of petroleum. The international crude oil prices showed large fluctuations and upward shocks. They fell from $25.22 per barrel in January 2000 to $19.06 per barrel in December 2001 due to the weakening of the US and global economies and the slowdown in oil demand caused by the “911” attacks and then continually went up to $32.18 per barrel in February 2003, the eve of the outbreak of the Iraq war. From 2000 to 2004, the economic resurgence brought a rapid increase in crude oil demand. Oil demand in OECD and Asia rose by 0.6% and 4.8% annually, respectively (IEA). Since 2005, the oil prices gradually entered into a high-level stage and increased to a record high in July 2008, i.e., $134.56 per barrel. Not only the Iraq war, Venezuela and Nigeria strikes and the hurricanes (Ivan, Katrina and Rita), but also the rapid growth in the global economy, the tight supply–demand balance, high spirits in speculations from other finance and commodity trading markets into oil market and the devaluation of US dollar caused by the reduction of interest rates of Fed pushed up oil prices. Afterward, because of the global financial crisis, world oil demand was slashed and oil price dramatically slumped toward about $43.05 per barrel in December 2008. Since February 2009, however, the oil price has experienced short-term low-level fluctuations and then rebounded continuously. In February 2011, oil price exceeded $100 per barrel again in just five months, i.e., $104.03 per barrel. From January 2011 to June 2014, the oil price remained volatile at a high level with a slight upward trend (Wu and Zhang 2014). However, high oil prices led to a significant increase in shale oil production in the USA. The transition from tight supply–demand to loose supply–demand dominated the international oil prices, which basically fluctuated within the range of $95–$130 per barrel. From the second half of 2014, oil production in USA had been growing rapidly, driven by the breakthrough in shale oil technology and the repeal of the 40-year-old US oil export embargo in December 8, 2015. In addition, the substantial growth in OPEC oil supply, weak oil demand, stronger US dollars and the increase in speculation caused oil prices to descend again to $31.93 per barrel in January 2016. Subsequently, oil prices have been slowly shored up above $50 per barrel because OPEC and non-OPEC producers reached an agreement on production reductions for the first time in November 30 and December 8, 2016, respectively.

Considering the econometric methodologies of investigating the relationship among international crude oil prices and their influencing variables, VAR and VEC models have been widely used. The transmission and feedback mechanisms between international crude oil prices and China’s refined oil prices for the time span from January 2011 to November 2015 are based on VAR and VEC models (Han et al. 2017). An empirical study on the relationship between prices of crude oil and retail refined oil based on VAR model is currently unavailable (Jiang 2013). However, VAR and VEC models have been less applied to statistically forecast long-term international crude oil prices in current literature. This is another innovative aspect of this industry.

~~VAR and VEC models are commonly used in systems forecasting interrelated time series and analyzing the dynamic impact of random disturbances on a system of variables

Finally,This transition does not come by itself, and the details of the energy system will vary significantly between regions and countries. Increased dialogue and collaboration is required to drive the transition: between industry, policymakers and regulators, between various parts of the energy industry and between countries and regions.