Project to the study of changes in the price of WTI crude oil

1. Introduction

This project is dedicated to the study of changes in the price of WTI crude oil for the period from 2000 to 2020. The first part of the project explores the relationship of the price per barrel of WTI crude oil (in $ USA) with the exchange rate of $ USA in relation to USDS (dollar index), inflation in the United States, and oil consumption in the United States in millions of tons. The second part contains an analysis of a simultaneous model in which the first equation remains the same (except for the declaration of the variable x3, which becomes y2), the second equation expresses the with the consumption of oil relations to USDS and inflation and GNI.

2. One-equation model

This first part is focused on one-equation model that describes the relations between of the price per barrel of WTI crude oil and the other variables (as exogenous variables).

2.1. Economic model and econometric model

This model follows general consumption function in basic form (C = Ca + c*Y). It isassumed   that   price of WTI   will   decrease   with   increase   of   inflation. With increase of inflation consumption of oil and USDS will increase.

Price of WTI   =   f(USDS,   inflation,   oil consumption)

Declaration of variables for econometric model.

Endogenous variable

• price of WTI$ ………………………………………………………y1t

Exogenous variables

• Intercept term (unit vector)............................................................x1t
• USDS  ........................................................................................ x2t
• Inflation ...................................................................................... x3t
• consumption of oil ........................................................................x4t
• Time vector ....................................................................................x5t

The econometric model is constructed by adding parameters γ, unit vector and error term to the economic model.

y1t= γ1x1t + γ2x2t + γ3x3t + γ4x4t +u1t

After dynamization:

y1t= γ1x1t + γ2x2t + γ3x3t + γ4x4t+ γ5x5t +u1

2.2. Data set

Data on oil prices and the dollar index for this study were collected online on the web pages of various exchange sites that store data archives, and data on inflation and oil consumption were collected on the website statbureau.org.  All procedures were handled and modified in Microsoft Excel or Gretl.  Knowledge of economics, statistics and mathematics were applied to reach appropriate results

TABLE 1 – Original data set.