fundamental and techincal analysis of crudeoil
TRANSCRIPT
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International commodity management term paper assignment on
Fundamental analysis and technical analysisOn crude oil (Team- D)
Submitted by
Anshul Vuppuloori (1226111!)
"andaru #amya (1226111!$)
Dasara%u &aga #a%a 'hanendra Varma (122611112)ima Venata Di*ya Vaada (12261111)
+ohammed &aseer ,han (12261111)
#egidi .ai .rini*as ,aushi (1226111/1)
.arath 0handra #eddy ' (1226111/)
Illuri Amarnadh #eddy (12261111)
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Introduction
0rude Oil is a naturally occurring thic dar ro3n 4lammale li5uid 3hich is
deri*ed 4rom Fossil Fuels 0rude Oil is also re4erred as "lac 7old as it o4 immense
economic importance It is a non rene3ale resource thus its demand is greater thansupply leading to high price rise It is reco*ered mostly through oil drilling
and is then re4ined into a large numer o4
consumer products lie petrol erosene
plastics and pharmaceuticals It is a type o4
Fossil Fuel consisting o4 a comple8 mi8ture
o4 hydrocarons
Oil is a magic 3ord that al3ays maes ne3s There is hardly a nation that does not see
this indispensale natural resource A country that already possesses crude oil 3ants
more They struggle to e8plore it at almost any cost The common man does not no3
much aout this strange 9mineral oil although in almost e*ery country he ears the‟
urden o4 the cost o4 e8ploration o4 oil or its import
Oil or 'etroleum is de4ined in a *ariety o4 3ays y geologists chemists re4iners
engineers and la3yers There is there4ore no uni4ormity or 4ull agreement .ince it is a
natural product 4orming a part o4 rocs geological de4inition 4inds more general
acceptance
The 3ord petroleum is deri*ed 4rom t3o :atin 3ords petra means roc and oleum means
oil 'etroleum is loosely called 9roc oil or 9crude oil It is a generic term co*ering a‟ ‟
3ide range o4 sustances comprising hydrocarons 3hich are naturally occurring
molecules o4 caron and hydrogen
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Uses of crude oil:
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Issues:-
Statement of the Problem in crude oil prices:-
0rude oil price is an important parameter 4or re4ining industries 3hich has a earing on
economy ecause it is *ital input 4or producti*ity There is a *ast gap in demand and
production o4 crude oil in India &ational oil companies are ale to produce 2/-2; o4 India s total re5uirements o4 crude oil The production o4 crude oil 4rom pulic sector ‟
enterprises in India has een decreasing due to old and the maturity o4 the 4ields
India is not sel4-reliance on crude oil production< there4ore it is necessary and ine*itale
to import the crude oil to ridge the gap et3een demand and supply The increase in
international crude oil prices 3ill mae import costly and raise the Indian crude aset
price There4ore oth international crude oil price rise and import dependency on crude
oil are the prolematic area that may damage the Indian economy
It is estimated that the import dependence o4 India associated 3ith crude oil is e8pected
to =; y the end o4 2!/! There4ore the troule 3ater in Indian crude oil demand and
supply management is the rise in international crude oil prices 4ollo3ed 3ith the e8tent o4
the increase in crude oil re5uirement 3ith respect to 4easile higher 7D' gro3th >; to
=; The import dependence o4 India associated 3ith crude oil is 4rom 6; in 2!11-12 to
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>!; y the end o4 t3el4th plan (2!12-1) As crude oil prices are rising gloally and
imports 3ill e e8pensi*e it is necessary to understand the conse5uences o4 crude oil
price rise on the economy
There4ore there is an urgent need to loo holistic picture o4 3hether the changes in
Indian crude aset prices ha*e any implication on In4lation and 7D' gro3th or is there
any lin et3een Indian crude oil aset price change and In4lation or In4lation is the
cause o4 concern 4or slo3do3n o4 7D' gro3th 3hat should e our strategy to meet the
gro3ing demand o4 crude oil 4or economic gro3th It is against this acdrop that 3e
attempt in this study to critically analy?e the impact o4 the change in crude oil prices on
Indian economy There4ore there is an urgent need to loo at holistic picture o4
in*estment in "ro3n 4ield and 7reen 4ield pro%ects in petroleum industry use o4 ne3
technologies in the area 4or Oil and 7as usiness
The desire o4 the study is to understand ho3 the increase in Indian aset price o4 crude
due to raise in international crude oil prices impact the economic indicators lie in4lation
and 7D' gro3th The essence o4 the study is to garner the understanding o4 the causal
relationship 3ith the phenomenon o4 comple8ity o4 historic 4acts in crude oil prices and
social reality o4 economic de*elopment and economic gro3th The study is essential 4or
oth @ no3ledge and to help in sol*ing prolems o4 usinesses arising out due to
in4lation predicting the 4uture price signal in relation to the usiness en*ironment andeconomic gro3th
&o similar research initiati*e has een undertaen in India that has 4ocused on causal
study and the impact o4 Indian crude aset price on the economic indicators lie the
in4lation and 7D' gro3th o4 the economy
The import re5uirement o4 crude oil is / @ 6 ; o4 total demand 3hich is e5ual to
11=+T 4or the year ending 2!11-12 and gro3ing annually at the rate o4 2=; To meetthe demand the crude oil is eing imported 4rom gul4 countries through long term
contract and international tie up is essential to a*oid any supply shoc The Indian aset
o4 crude comprising o4 the composition represents a*erage o4 Oman Duai 4or sour
grades and "rent (Dated) 4or s3eet grade in the ratio o4 66B/2 4rom 1st AprilC2!1!
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Fundamental analysis:-
INDIAN SCENAI! in crude oil:-
India is and shall remain hea*ily dependent on coal 4or aout hal4 o4 its primary
commercial energy re5uirements 3ith the other hal4 eing dominated y oil and gas put
together The Indian hydro caron industry is currently passing through a challenging
phase Increasing concern 4or energy security increasingly stringent en*ironmental
regulations emergence o4 natural gas and soaring crude oil and natural gas prices ha*e
thro3n up oth challenges and opportunities to the Indian oil and gas industry
'ro%ected high domestic demand 4or petroleum products is e8pected to push
in*estments into the re4ining sector India 3ith 1> re4ineries currently has asurplus
re4ining capacity 3hich has placed India amongst net petroleum product e8porter
countries Increasingly stringent 4uel speci4ications ha*e put pressure on the old and non-
compliant re4ineries to upgrade their re4inery con4igurations to produce compliant 4uels
The 7o*ernment is seriously considering promoting India as a competiti*e re4ining
destination to ser*ice e8port maret 4or petroleum products as also integrating it 3ith the
petrochemical and chemicals usinesses to produce and e8port higher re*enue generating
*alue-added products 8ceptionally high crude oil prices in the international maret and
an almost stagnant domestic crude oil production has caused a drain on countryEs 4oreign
e8change reser*es "esides augmenting domestic reser*es India has success4ully
*entured o*erseas to ac5uire oil and gas assets and entered into long-term :i5ue4ied
&atural 7as (:&7) contracts as measures 4or enhancing energy security
'ersistence o4 high oil prices and dependence on imported oil lea*es India 3ith
some di44icult choices to mae The choice is et3een (a) passing on the price increase to
the consumer< () rationali?ing ta8es and other le*ies on petroleum products< and (c)
maing the &ational Oil 0ompanies (&O0s) ear the urden Although the 7o*ernment
has resorted to a comination o4 all ao*e three options in the past each o4 these options
has its o3n dra3acs In the long run the only *iale policy to deal 3ith high
international oil prices is to rationali?e the ta8 urden on oil products o*er time remo*e
anomaly i4 any in the e8isting pricing mechanism reali?e e44iciency gains through
competition at the re4inery gate and retail prices o4 petroleum
ith the ad*ent o4 :&7 and progressi*e de-control o4 gas prices the natural gas
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sector in India has progressed and achie*ed some degree o4 maturity It has managed to
recei*e progressi*ely gro3ing attention 4rom gloal companies and has made rapid
strides during the last 4i*e years 0urrent natural gas policy dispensations ha*e created
numerous challenges 4or the gas sector +a%or among them are the demands o4 competing
consumer industries ensuring competition and open access in the pipeline
Transportation and distriution net3ors
reducing the supply demand gap that e8ists
today
Issues related to ecological alance ut also estalished deli*ery mechanisms the
technological constraints that are pre*alent in the system and immediate compulsion to
meet the priority needs o4 the economy economic e5uity and sel4-reliance .imultaneous
and concurrent action is there4ore necessary to ensure that the short-term concerns do
not detract the economy a3ay 4rom the long-term goals
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"A#! !I$ PICE %ENC& "A'S:-
(&E EC!N!"ICS !F !I$:-
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ey rates ans are le4t 3ith lesser 4unds to lend to their customers Therey sucingout the e8cess li5uidity in the economy "ans are 4orced to 4ollo3 suit increase thecost o4 loans to its customers A hie in interest rates also attracts 4oreign capital 4lo3s3hich may lead to appreciation o4 the Indian #upee .uch appreciation dampens the
pro4itaility o4 Indian e8porters at times 4orcing them to shut shop CAPE+ P!S(P!NE"EN(: 0orporate India largely relies on orro3ings 4rom ans
4or usiness e8pansion In *ie3 o4 in4lationary trends dearer cost o4 4unds corporate
India puts it 0apital 8penditure (0A'G) plans in the cold storage The idea is to 3ait4or the in4lation interest rates to come do3n e4ore initiating any ne3 pro%ects
EDUC(I!N IN CEDI( *!,(&: A reduced le*el o4 in*estment in the economydue to increase in interest rates leads to a slo3do3n in the credit gro3th (:oanDisursement) o4 ans the luricant o4 e*ery economy
FA$$ IN E"P$!)"EN( !PP!(UNI(IES: As usiness acti*ity in the economytaes a hit generation o4 employment opportunity also su44ers a setac S$!,D!,N IN EC!N!"IC *!,(&: A sustained rise in interest rates in the
economy egins to hurt the economic gro3th #educed in*estment lo3er spending on
In4rastructure 4all in domestic consumption o4 goods ser*ices puts a rea on thegro3th o4 the economy
,hen !il Prices "oe Up: 7D' is a44ected negati*ely
In4lation increases 7o*ernment spending on susidy increases 8ports ecome 3ea Foreign currency reser*e depletes .hare maret crumles In*estment decreases
CA$CU$A(I!NS !F !I$ PICES IN INDIA
The ao*e mentioned highlights ha*e greatly in4luenced the total cost price o4 oil in
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the country All the 4actors lie import ta8 e8cise duty and other ta8es le*ied y the
go*ernment a44ects the total cost price ere there is an e8planation o4 ho3 4uel price is
calculated and ho3 ta8es in4luence the cost price The cost price o4 petrol per litre is #s 6>
(as on march 1st 2!1 at 0hennai) 4ollo3ing is the rea up 4or the same B
%asic Price: s. /0.//
E1cise duty: s. 23.44
Education (a1: s. 5.67
Dealer commission: s. 2.45
8A(: s. 3.4
Crude !il Custom duty: s. 9.2
Petrol Custom: s /.46
(ransportation Chare: s. 7.67
(otal price: s 03.67
0onsumerEs 'erceptionB igh in4lation has rought do3n the car maret 4orcing the car manu4acturers to come up
3ith e8citing o44ers to lure customers "ut the o44ers didnEt turn out to e success4ul ecause
consumers had their o3n perspecti*es
=2; o4 the prospecti*e uyers ha*e a elie4 that the 4uel price 3ill go do3n in another three to 4our months and they 3ish to 3ait 4or their ne8t purchase
66; ha*e s3itched o*er to pulic transport and 5uit dri*ing >; consumers are in hunt 4or a 4uel e44icient car
/>; o4 the consumers are trading or selling their cars in return o4 something 3ith etter 4uel e44iciency 2!; o4 the prospecti*e uyers are happy dri*ing their t3o-3heelers
Some "iscellaneous effects of risin fuel prices ;
Apart 4rom ha*ing a de*astating e44ect on the Indian car industry rising 4uel prices ha*ealso 3ound do3n the ooming airline industry and a44ected the electric po3er plants o4 the country The Indian airline industry 3as 4lying high ut the sudden hie in 4uel prices
rought do3n the 4aith o4 other ma%or players in the same 4ield including Air India HetAir3ays ,ing4isher and .pice Het Indian po3er system also 4aces a great threat y the
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rising oil prices The ma%or Indian cities lie +umai and "angalore are 4acing 4re5uentload shedding due to oil shortage 'eople residing in these cities are 4acing this prolemo4 unscheduled long hours o4 po3er cut daily In short high oil prices ha*e ecome a painat the pumps in the houses and e*en in the industries dictating a hea*y loss to the Indian
economy hen the price o4 crude oil rises gloally it has a ig impact on India and in particular
its automoile industry India is the 4ourth iggest user o4 crude oil in the 3orldimporting three-5uarters o4 it at a huge cost "et3een Hanuary and Octoer 2!1! Indiaspent >21 illion on crude oil imports .o 3hen the price rises there is an instant e44ecton IndiaEs economy
A rise in price is trans4erred to the automoile industries in one o4 t3o 3ays ither the price o4 petrol increases or the go*ernment asors the price rise leading to more
susidies to 4uel companies eing paid resulting in a greater 4iscal de4icit In turn thisindirectly generates a rise in in4lation and restriction o4 gro3th The #eser*e "an o4 India commented on the crude oil price rise laming it along 3ith 3orld3ide uncertaintyand slo3 economic reco*ery 4or hampering gro3th in India 7ro3th 4or the 4iscal year 2!11 is only pegged at ; y the an do3n 4rom >6; the pre*ious 4iscal year
The other impact is more instantly tangile< the rise in petrol prices The gas prices rose y =; a record rise and the eighth time since the go*ernmentEs economic re4orms 3hichderegulated gasoline in Hune 2!1! Increased petrol prices see motorists s3itch to
di44erent 4orms o4 transport 4rom cars to pulic transport or icycles 3hich impacts uponautomoile sales I4 the cost o4 running a car ecomes too high people are happy tochange the 3ay they mo*e aout their cities
*en i4 the pulic do not aandon car o3nership perhaps ecause o4 4ears concerning thereliaility o4 pulic transport people are tempted to change to *ehicles 3hich run moree44iciently This particularly a44ects automoile companies 3ho create larger and more
po3er4ul *ehicles As mentioned e4ore India imports the ma%ority o4 its crude oil Iran isthe second iggest e8porter o4 crude oil to India and their imported produce is *alued at12 illion o3e*er the Jnited .tates has claimed the uropean Iranian Trade "an3hich handles the transactions is responsile 4or 4inancing an Iranian nuclear 3eapons
programme As such the Jnited .tates does not 3ant India to continue pursuing trade3ith the an .o India needed to 4ind a di44erent 3ay to pay Iran or 4ind an alternati*esolution to a*oid su44ering a crude oil shortage and 4urther raised prices
Crude !il Price and Commodity "ar! s replacing the system o4 ‟
o44icial selling oil prices determined y O'0 The commodity pricing mechanism in the oil
sector has e*ol*ed technically 4rom the spot trading to the 4uture maret and 4inancialderi*ati*es 3hich are typically 4ound in all commodity maret
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Oil is the most important energy source accounting 4or more than a third o4 the 3orld
primary energy mi8 It is e8pected to continue to hold the largest share in the coming
decades although the share 3ill decline marginally In *olume terms oil production K
consumption 4ell a4ter the second oil crisis in 1== and ottomed in 1=>/ .ince thenho3e*er the *olume has een continuously increasing despite *ariations in the price
0rude oil is a gloal commodity It has een traded internationally soon a4ter the modern oil
industry started in 'ennsyl*ania J. in the 1>6! s oil trading has come a long 3ay 4rom the‟
stale controlled system o4 the +a%or s 3hich ended in the late 1=6! s through O'0 s‟ ‟ ‟
5uota system in the 1=! s and the 4irst hal4 o4 the 1=>! s to the maret mechanism since the‟ ‟
mid @ 1=>! s 0rude trading represents the ey lin et3een the t3o poles o4 the industryB‟
upstream (8ploration and 'roduction) and do3nstream (re4ining and mareting) and crude
prices gi*e signals to oth upstream and do3nstream operations
The si?e scope and comple8ity o4 gloal crude trade are uni5ue among physical
commodities As o4 2!11 more than >6 million arrels o4 oil are produced and consumed
e*ery day "eyond the scale oil has played a signi4icant role in 3orld history in the 2! th
century The strategic importance o4 oil and the crucial role it plays in the economy mae oil
a commodity lie no other
The gloal crude oil maret has een in a constant process o4 trans4ormation The impact o4
urning 4ossil 4uels (including Oil) on the en*ironment ecame a serious issue in the late
1=>! s The rise in terrorism and political uncertainties in the +iddle ast ha*e re*i*ed‟
supply security concerns igher oil prices are encouraging the de*elopment o4 non-4ossil
4uels such as nuclear 4uel cells and io4uels These and other 4actors 3ill a44ect 4uture prices
and pricing mechanisms
&etac 'ricing
Although netac pricing 3as a rie4 episode in the history o4 crude oil pricing mechanisms
the concept is o4ten used in pricing other 4uels than oil eg natural gas The netac pricing
in the oil sector 3as de*eloped y .audi Araia in 1=>$ "y 1=>->$ the o44icial selling price
system 3hich 3as the asis 4or most long term contracts had roen do3n "uyers 3ere
4inding the strict conditions
and o44icial prices unacceptale in the 4ace o4 a gloal supply glut At the time .audi Araia
3as acting as s3ing producer 3ith the O'0 5uota system lo3ering its production *olumes
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so that total O'0 production could e ept 3ithin the *olume to support the prices set y
O'0 o3e*er under this policy the country s production had to e cut ac 4rom 1!‟
+"D to /$ +"D coming to the lo3er limit .audi Araia had to produce in *ie3 o4
associated gas needs In additions .audi Araia s e44orts 3ere not necessarily shared y the‟
other O'0 countries Finally in 1=>$ ,ing Fahd decided to increase production and reco*er
his country s maret share &etac pricing 3as introduced as the instrument to implement‟
this production increase It pro*ed to e a *ery e44ecti*e tool 4or .audi Araia to 5uicly
regain maret share
The netac pricing 4ormula 3as<
0rude oil price (FO") L 7' in the spot maret @ 4i8ed re4ining margin @ transportation
costs (4rom the terminal in the oil-e8porting country to the re4inery in the oil-importing
country) This netac pricing system introduced the concept o4 maret prices 4or crude oil
although it 3as ased on petroleum products
&etac pricing 3as also attracti*e to the uyers (re4iners) 3hich other3ise 3ere su44ering
4rom unstale lo3 margins o3e*er the success o4 netac pricing and the increase in
.audi Araia s production led to a huge drop in oil prices in 1=>6 plunging elo3 1!Kl‟
This is sometimes called 9the counter oil crisis as opposed to the t3o pre*ious oil crises
&etac pricing 3as lamed 4or the price crash A4ter a rie4 period o4 netac pricing
dominance the 4i8ed o44icial selling prices returned rie4ly in late 1=> producing countries
stopped posting the prices in 1=>>
$on (erm Contract
A4ter the integrated system o4 the +a%ors O'0 de*eloped long-term contracts in the early
1=! s 'roducing countries too control o4 the upstream sector and as a result the oil‟
industry 3as trans4ormed Jpstream concessions 3ere replaced y contractual relations and
then e8propriated 0ontracts 3ere typically FO" priced since taner transportation remained
3ith international oil companies (IO0s) &e3 national oil companies 3ere emerging The
+a%ors lost control o4 oil prices and oil prices 3ere set at O'0 meetings as o44icial selling
prices This o44icial selling price system lasted until the mid-1=>! Against this acground
long term contracts o44ered some degree o4 supply security
:ong term contracts are 3idely used in international crude trading today Although
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comprehensi*e data are scarce it is thought that more than $!; o4 internationally traded
crude is under long term contracts O'0 countries in the +iddle ast sell their crude
e8clusi*ely to re4iners through long term contracts The situation is similar 4or #ussian crude
oil 3hich is transported to re4ineries y crude oil e8port pipeline The duration o4 the
contracts is normally one year 3ith rene3als in terms o4 the trading *olumes For producing
countries long term contracts guarantee maret access 4or their crude re4iners in the
consuming country can en%oy stale supply *olumes and crude 5ualities pro*ided y long
term contracts On this asis re4iners can optimise their operation y uying residual
*olumes through spot trading
Price Formula
'rior to 1==->! long-term contracts accounted 4or most international trade In the 1=! s‟
crude 3as sold at o44icial selling prices 3hich 3ere set according to di44erentials to Araian
:ight The di44erentials 3ere ased on physical properties o4 the grades and distances to the
marets o3e*er the o44icial price system 3hich 3as the asis 4or most long-term contracts
then 3as no longer 3oring in the mid-1=>! s under the decreasing call 4or O'0 oil due to‟
increased non-O'0 production and diminishing oil demand in the early 1=>! s .audi‟
Araia 3hich played the role o4 s3ing producer 3ithin the O'0 5uota system estalished
the netac pricing system in late 1=>$ to de4end its maret share and aandoned the o44icial prices The netac pricing system tied the *alue o4 crude oil to the spot maret prices o4
re4ined products
efinin "arins
#e4ining margins represent monetary gains or losses associated 3ith crude oil processing
operation To mae comparisons possile y crude grade re4inery operation or region
calculations normally assume standardised re4inery con4igurations The margin calculation
taes into account 3ages construction and other associated costs incurred in re4ineryoperation together 3ith *ariale costs including uying and processing crude oil Although
margin calculations are more re4lecti*e o4 economics o4 processing a marginal arrel rather
than returns 4rom ase load operation re4ining margins can suggest indications o4 4inancial
returns to a re4inery
efinin marin = *P, ; Crude Costs ; (ransport Costs and Applicable fees and
Duties ; Financial Costs ; 8ariable Costs ; Fi1ed Costs.
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Spot and Futures "ar! s to organise spot marets as there 3ere as many spot marets as crude streams‟
7radually "rent and TI emerged as the t3o most in4luential enchmars +arets 3ere re-
organised in line 3ith these crude grades and the other grades are inde8ed to them
At the same time 4utures marets 3ere eing 4ormed in estern countries There 3as a desire
on the part o4 oil companies to reduce ris in light o4 high *olatility a4ter 1=/ De*elopments
in in4ormation technology de*elopment in 4inancial theory and a political climate 4a*ouring
marets o*er go*ernment administrati*e guidance led to the creating o4 4inancial deri*ati*e
marets Including 4utures and options
Oil 4utures marets are not ne3 'rice *olatility in the early days o4 the J. oil industry
resulted in the 4irst oil 4utures contracts in 'ennsyl*ania in 1>6! s 3hich too the 4orm o4 ‟
pipeline certi4icates During the ne8t /! years more than 1! e8changes in the J. 0anada
and urope traded crude 4utures o3e*er 3hen #oce4eller estalished monopoly control
and later 3hen the +a%ors controlled the maret prices ecame more stale the need 4or
maret ris management disappeared and the early 4utures trading disappeared as 3ell
In 1== heating oil ecame the 4irst ne3 4utures contract at the &M+G and theInternational 'etroleum 8change (in :ondon 4ollo3ed in 1=>1 7asoline (petrol) 4utures
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trading started on the &M+G in 1=>1 TI trading started in 1=>/ on the &M+G and
"rent in 1=>> on the I' The &M+G launched natural gas 4utures in 1==! and the I' in
1== The &M+G still has an open trading 4loor called outcry ut it egan electronic
trading a4ter hours on &M+G access in 1==/ At I' the open outcry system 3as aolished
in 2!!$ and no3 all contracts o4 the I' are traded electronically on screen only
The &M+G TI 4uture is the most acti*ely traded commodity in the 3orld some 2/! +"D
is currently traded almost three times as much as the physical oil production K consumption
The contract trades in units o4 1!!! arrels and is listed 4or up to 2 months The deli*ery
point is 0ushing Olahoma Trading *olumes o4 I' s "rent 4utures are around 1!! +"D‟
:ie TI "rent contracts are 1!!! arrels per unit and listed 4or up to 2 months The I'
has a deli*ery system called e8change o4 4utures 4or physicals (F') Jnder this system "rent
contract holders can cancel out a 4uture contract 3ith a physical spot contract "y doing so
the holders can ha*e the same result as physical deli*ery o4 the commodity
Spot "ar
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'rices o4 &orth .ea 0rude (eg o4is or Forties) 4or instance are normally inde8ed to that
o4 "rent
For>ard "ar> Instead 4or3ard marets 3ere de*eloped around "rent crude in the
1=>!s There4ore "rent has three price 5uotations .pot marets handle cargoes 3ithin
4i4teen-day a*ailaility called 9dated "rent 3hile 4or3ard marets 3ere de*eloped 4or more‟
distant 4uture deli*eries named 94i4teen @ day "rent "rent traded on the I' 4utures‟
marets is called 9I' "rent ‟
The 4or3ard 4i4teen @ day "rent maret has more standardised operation than the spot dated
"rent maret The cargo si?e is 4i8ed at $!!!!! arrels N $; The deli*ery taes place at the
.ulom Voe terminal in the &orth .ea In the 4i4teen day "rent trading only the month o4
deli*ery can e designated (eg Hanuary deli*ery "rent Feruary deli*ery "rent +arch
deli*ery "rent etc) The uyer speci4ies the month and the *olume and the seller indicates
the deli*ery date o4 the cargo at least 4i4teen days prior The name came 4rom this practice
hen a 4i4teen @ day "rent cargo is name and dated it ecomes a spot dated "rent
transaction In addition to the "rent crude there are 4or3ard marets o4 gasoline ('etrol)Diesel ,erosene &aphtha and hea*y Fuel Oil in urope
For3ard contracts are in et3een spot and 4utures contracts (Tale =) In a hedging
operation a position is taen in the 4or3ard maret in an opposite direction to a position in
the physical maret o3e*er speculation also taes place in the 4or3ard maret 3hen an
operator taes a position in order to gain pro4it 4rom price 4luctuation A cargo o4 crude oil
can e trans4erred 4rom one trader to another many times et3een loading and deli*ery
.eries o4 conse5uential transactions in the 4or3ard maret are called 9Daisy 0hains +osttransactions are cancelled out y re*ersed transactions
Futures "arard @ Futures @ !ptions Deals
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1==! s ut the up3ard price spie did not ecome noticealy pronounced until late 2!!/‟
3ith oil prices rising sharply et3een 2!!/ and 2!!> and reaching a pea o4 o*er 1> a
arrel in Huly 2!!>
Plot of International Crude !il Prices
E1ponential smoothin of Crude oil prices:-
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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19
0
500
1000
1500
2000
2500
3000
3500
4000
SMA (3)
BB- Upper
BB- Lower
Close(Rs)
Interpretations:-
As per the ao*e data and graph o4 crude oil o4 closing prices sho3s that "" upper line stays
at top around /6!! and it comes do3n to 2=!! on 1> th Decemer 3hich sho3s *ery less
changes in the upper line o4 crude oil The lo3er line is at lo3er side o4 ao*e lines
The graph sho3s that there not much changes or 4luctuations in lo3er upper .+A (/)
and closing rate o4 the crude prices 3hich only comes do3n around elo3 /!!!'A$ PEAS!NS C!E$A(I!N C!EFFICIEN( Br:---
The ,arl 'earson correlation coe44icient (r) is used to measure the correlation et3een
*ariales G (0rude oil price) and M (holesale price inde8 or 'I) The ,arl 'earson
coe44icient is designated y the letter r and is sometimes called 'earsonCs r 'earsonCs
correlation re4lects the degree o4 linear relationship et3een t3o *ariales It ranges 4rom P1
to -1 A correlation o4 P1 means that there is a per4ect positi*e linear relationship et3een
*ariales A correlation o4 -1 means that there is a per4ect negati*e linear relationship
et3een *ariales A correlation o4 ! means there is no linear relationship et3een the t3o
*ariales
+athematical FormulaB--
The 5uantity r called the linear correlation coe44icient measures the strength and the
direction o4 a linear relationship et3een t3o *ariales The linear correlation coe44icient issometimes re4erred to as the 'earson product moment correlation coe44icient in honor o4 its
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de*eloper ,arl 'earson
The mathematical 4ormula 4or computing r isB
here & L numers o4 the oser*ations
QGM L .um o4 the products o4 paired *ariales
QG L .um o4 G *ariales
QM L .um o4 M *ariales
QGR L .um o4 s5uared G *ariales
QMR L .um o4 s5uared M *ariales
Tale- >1
'I 0rudemonthly 'rice
(GR) (MR)(M) (G) (GM)April9556-
54 1$1 22$1 /1 $!6! 2/!12>=+ay 1$1> 266! !/>> !$6 2/!/2Hune 1$2 2>= /$!2 >116> 2//12=
Huly 1$/1 226 1/$1 /11 2//=61August 1$/ 2>6 /6$6 >!== 2/$/1$6.eptemer 1$ /1/ >>/! =>22! 2/=/2!=Octoer 1$= /!$! >1$=$ =/!2$ 2=/21
&o*emer 1$>2 /!=2 >=1$ =$6!$ 2$!22Decemer 1$>$ 2/2$ /6>$1/ $!$6 2$1222$Hanuary 1$>6 2!2 />!=$ $6=6 2$1$/=6Feruary 1$>6 2$=2 11!=1 61>$ 2$1$/=6+arch 1$=1 2/>2 />=6 $6/= 2$/12>1April9554
-53 1$== 2>2 /=6>2 616!/ 2$$6>!1
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+ay 16!/ 26=$ /2!!= 26/! 2$6=6!=Hune 16!> 266/ 2>21! !=16 2$>$66Huly 1611 2/== />6= $$$2 2$=$/21August 161 2$!1 !12 62$$! 2616>=.eptemer 161 2= !!>$ 61$ 2616>=Octoer 162$ 2!!$ /2$>1/ !2!! 26!62$
&o*emer 162/ 1>2 2=6!/$ //2! 26/12=Decemer 161> 1>2 2=$12/ //2! 261=2Hanuary 161 1>=2 /!612 /$= 2$=21!!Feruary 16!> 1=$$ /1/6 />22! 2$>$66+arch 161= 2//1 //>= $//6 2621161
April9553-
50 162/ 2$!/ !62/ 626$! 26/12=+ay 162> 2$!! !!!! 62$!! 26$!/>Hune 16 2!$ /=61! $>! 2126!=
Huly 16$6 2$1> 16=>1 6/!/ 22//6August 161 2$>6 /2121 66> 2=221.eptemer 16 2= 6!1>/ $$! 2>!226Octoer 16$ 26=! $!$$ 2/61 2>!$62$
&o*emer 16> 2/6> /=/$! $6! 2>1$6>Decemer 162 211 $/2= /=$ 2=$$>
Hanuary 16> 2=$= =6$2! >$$ 2>1$6>Feruary 16= /126 $2=$ =1= 2>6=6/6+arch 116 2>>/ =2/ >/11 2=6$6April9550-57 1/1 221 1=!$ $>612 2==6/61+ay 1/ 2$!! //$!! 62$!! /!!6$6Hune 1/$ 262 $>/> 6=>!2 /!1!22$Huly 1/ 26 61$6 $!$ /!!6$6August 1/ 2>66 =>2 >21! /!116=.eptemer 1$6 262 61/!1 6=!11 /!>/$/6Octoer 161 2>$ $!1!!$ >!=! /1!1121
&o*emer 16= 2>2! =>>$> =$2 /12=/61Decemer 16> 2>= $121=! >/=26 /12$>2Hanuary 1> /!!1 $/62= =!!6! /1=//6=Feruary 1=> 2=61 $/2/>> >6$ /2/2>!+arch 1=> /221 $=1/6 1!/> /2/2>!April9557-5? 1>!= /2/6 $>$/=2 1!1 /22>1+ay 1>21 /6!= 6$1== 1/!2= //16!1Hune 1>$2 /22 6//$ 111!1 /2==!Huly 1>66 /6/$ 6>2=1 1/21/2 />1=$6
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August 1>> !$/ 6/$>$ 1626> /$=$6.eptemer 1>= /=1$ 1$!1 1$/22 /$>2/6Octoer 1>>= // >1=2$= 1>>!=6 /$6>/21
&o*emer 1=!2 />>2 />/$6 1$!6== /616!Decemer 1>>> /6>$ 6=$2> 1/$=2 /$6$
Hanuary 1>>6 1!! /26! 16>1!! /$$6==6Feruary 1>>> 2$> >!/=1! 1>1/!6 /$6$+arch 1>= =2 =//1 22$/ /$>2/6April955?-25 1=16 =/ =!= 2//2 /61!$6+ay 1=21 !2 =!/2$ 221!>> /6=!21Hune 1=/2 $22 1!1>$$! 2=! //262Huly 1=6 $$!1 1!!=$ /!261! />6=16August 1=$/ 6!!/ 112/>6 /6!/6! />12!=.eptemer 1=2 $= 11>!/ /$6>> />>>>Octoer 1=> $62> 111/21> /16 /=12>
&o*emer 1=>2 $//1 1!$66! 2>1=6 /=2>/2Decemer 1=2 $$!$ 1!>$$>6 /!/!$! />>>>Hanuary 1=6/ 6!61 11>= /6/$ />$//6=Feruary 1=6 $>=$ 11$> /$1! />$2=6+arch 1=6> 6!!1 11>!== /6!12! />/!2April9525-22 1== 6!6 1//= =! /=6!1!!
+ay 2!1/ 6// 1/$$/$/ $//// !$216=Hune 2!/1 66=! 1/$>/= $61 12=61Huly 2! 12= 1$/16 $!>226 1616!!August 2!$/ !> 1$=61 $!22$6 21>!=.eptemer 2!> 6!= 1266/// /1/6> /1>!>Octoer 2!> $26 11=$!16 /2>1 /$$$6=
&o*emer 2!=1 $>! 12!>$=> //!> /22>1Decemer 2!> 6!/ 12$>6 /6!=2 //!$6Hanuary 2!>> $262 1!=>!6 26>>6 /$=Feruary 2!>= $6= 11>!!6 /1=112 /6/=21
+arch 2!=> 6!26 1262$$ /6/12 !16!April9522-29 211$ 6$> 1/>=!2 2>6/ /22$+ay 212/ 6$6 1/=6!>$ /2/> $!12=Hune 212/ 6>1! 1$6/ 6/61 $!12=Huly 21/6 2$> 1$$!/!= $26>6 $62=6August 21/> 6>= 1$= $6>6 $1!.eptemer 21$1 > 16!>$1> $$=2!$ 626>!1Octoer 21$2 =// 1!1>2 62=/2$ 6/11!
&o*emer 21$= >=1$ 1=2= =2 6612>1Decemer 216 >=2 1=!2$>= 2==/ 6>2>=6Hanuary 21>1 >=$2 1=$2/1 >!1/>/ $661
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To determine the in4luence o4 crude oil price on in4lation o4 the Indian economy
The 4ollo3ing time series regression e5uation 3as 4itted
MtL a P G P et ---------- (1) here
Mt denotes the 'I ( ase year 1==/- = )
9a denotes constant 5uantity ie the intercept o4 the line on M- a8is 9 denotes‟ ‟
the co-e44icient o4 G
9G denotes the crude oil price( monthly Indian aset price) 9e‟ t is‟residual term o4 the model
e shall no3 rie4ly discuss the mechanics o4 the +odel - 1 t3o *ariale linear regressionthe e5uation o4 the model is ML a P 8 P et the scatter plot o4 GL crude oil price and ML 'I
monthly is sho3n in the graph >2
The oser*ed data are used to estimate the t3o parameters 9a and 9 o4 the model and 9e‟ ‟ t‟
is the stochastic term or noise The actual numerical estimates o4 the intercept and the slope
are 3ritten as 9aS and 9S 3here the hatsU indicate that the 5uantity is an estimate o4 a‟ ‟
model parameter @ an estimate that is computed 4rom the oser*ed data
The ao*e e5uation can e 3ritten as MLaPG in asence o4 error term ie etL! In the
e5uation the parameter 9a is the intercept it gi*es the 5uantity o4 3holesale price inde8‟
('I) 3ithout the in4luence o4 crude price ie 3hen GL! and 0onstant 9 is the co-‟
e44icient o4 M in relation to G or the slope
The slope a summary o4 the relationship et3een G and M ans3ers the e5uation 3hen G
changes y one unit y ho3 many units does M change The ans3er is that M changes y 9‟
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units In the research o4 the impact o4 crude oil prices (Indian aset) on 'I (3holesale
price inde8) the 4itted line 3ith the oser*ed data is sho3n in the graph
The e5uation 'I L 16!/$ P 1!!!2W0rude oil price 4its the relationship et3een the
incremental increase in 'I on the incremental increase o4 crude oil price The estimated
slope 9S is 1!!!2< that is‟
0hanges in M 0hange in percent o4 'I9S L ---------------------- L -------------------------------------------------- L 1!!!2‟
0hanges in G 0hange in percent o4 crude oil price
This means that a 1; change in crude oil price 3as typically accompanied y a change o4
1!!!2; o4 'I Thus an increase o4 only 1; in crude oil price 3ould increase
sustantially in 'I O4 course it 3ors in other 3ay too< a drop o4 1; o4 crude oil price is
associated 3ith decrease o4 1!!!2; o4 'I The estimate o4 slope measures 3hat is call
s3ing ratioU @ the s3ing or change in 'I 4or a gi*en change in crude oil prices
It can e seen 4rom graph ao*e that total change in M is not e8plained y a change in G Theregression line can e8plain the total change in M in response to change in G only i4 the entire
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crude oil price 'I points 4all on the regression line "ut as is e*ident 4rom the graph all
crude oil price 'I comination points do not 4all on the regression line .ome points are
placed ao*e and some points are placed elo3 the regression line This means that ie the
slope o4 the regression line does not e8plain the total change in M in response to a change in
G The une8plained part o4 M is called the error term the residual or the disturance The
purpose o4 regression techni5ue is to 4ind the a*erage *alues o4 9a and 9 3hich mae the‟ ‟
*alues o4 oser*ed pairs o4 G and M ie(G1M1) (G2M2) etc as close to the regression line as
possile The line so 4itted is called the est 4it regression line This o%ecti*e is achie*ed y
minimi?ing the error terms ie the de*iation o4 oser*ed *alue o4 Mt (tth *alue tL
1 2 / X n) 4rom its estimated *alue MtS can then e de4ined as error term there4ore error
term is et L Mt @ MtS
#egression techni5ue minimi?es the error term 3ith a *ie3 to 4ind the est 4its the oser*eddata .o the prolem is ho3 to minimi?e the error term It can e seen 4rom the graph o4 the
4itting line that the error terms in some months are positi*e as the points are ao*e the line
and in some months they are negati*e .o one 3ay to minimi?e the error could e to 4ind the
sum o4 the error terms In this method positi*e and negati*e errors 3ould tend to cancel out
It 3ould mean error does not e8ist or there are no de*iations 4rom the estimated line 3hereas
it can e seen in graph the positi*e and negati*e error term may not cancel out There4ore
the sum o4 the error terms cannot e used as a measure o4 de*iation o4 the oser*ed data 4romthe estimated one This prolem is a*oided y using the s5uare o4 the error term The
techni5ue that regression analysis uses to minimi?e the error term is called Ordinary :east
.5uare (O:.) method It is the sum s5uare o4 the error terms that regression techni5ues see
to minimi?e and 4ind the *alues o4 9a and 9 that produce est 4it line‟ ‟
(>o ariable reression
Mt Gt Gt Mt GtR
'Imonthly 0rude 'rice I
April2!!-!$ 1$1 22$1 /1 $!6!+ay 1$1> 266 !/>> !$6Hune 1$2 2>= /$!2 >116>Huly 1$/1 226 1/$1 /11
August 1$/ 2>6 /6$6 >!==
.eptemer 1$ /1/ >>/ =>22!Octoer 1$= /!$ >1$=$ =/!2$
&o*emer 1$>2 /!=2 >=1$ =$6!$
Decemer 1$>$ 2/2$ /6>$1/ $!$6Hanuary 1$>6 2!2 />!=$ $6=6
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Hanuary 1>>6 1 /26 16>1!!Feruary 1>>> 2$> >!/=1 1>1/!6
+arch 1>= =2 =//1 22$/April2!!=-1! 1=16 =/ =!= 2//2
+ay 1=21 !2 =!/2$ 221!>>Hune 1=/2 $22 1!1>$$ 2=!Huly 1=6 $$!1 1!!= /!261!
August 1=$/ 6!!/ 112/= /6!/6!.eptemer 1=2 $= 11>! /$6>>
Octoer 1=> $62> 111/22 /16 &o*emer 1=>2 $//1 1!$66 2>1=6Decemer 1=2 $$!$ 1!>$$= /!/!$!Hanuary 1=6/ 6!61 11>= /6/$
Feruary 1=6 $>=$ 11$> /$1!+arch 1=6> 6!!1 11>1! /6!12!
April2!1!-11 1== 6!6 1//= =!+ay 2!1/ 6// 1/$$/$ $////Hune 2!/1 66= 1/$> $61Huly 2! 12= 1$/2 $!>226
August 2!$/ !> 1$=6 $!22$6.eptemer 2!> 6!= 1266// /1/6>
Octoer 2!> $26 11=$!2 /2>1 &o*emer 2!=1 $> 12!>6 //!>Decemer 2!> 6!/ 12$= /6!=2Hanuary 2!>> $262 1!=>1 26>>6
Feruary 2!>= $6= 11>!!> /1=112+arch 2!=> 6!26 1262$ /6/12
April2!11-12 211$ 6$> 1/>= 2>6/+ay 212/ 6$6 1/=6!> /2/>Hune 212/ 6>1 1$6 6/61Huly 21/6 2$> 1$$!/1 $26>6
August 21/> 6>= 1$> $6>6.eptemer 21$1 > 16!>$2 $$=2!$
Octoer 21$2 =// 1!1> 62=/2$ &o*emer 21$= >=1$ 1=2$ =2
Decemer 216 >=2 1=!2$= 2==/Hanuary 21>1 >=$2 1=$2/ >!1/>/
Feruary 21== =216 2!266 >=/+arch 22$$ ==6 22=$= ==$2!6
April2!12-1/ 22>$ 1!$ 216> 111>2=+ay 2/11 12!=1 2=2/ 161=2/Hune 2/> 12=2 /!> 16>22>Huly 2! 1/2 /1=2> 1$>/!
August 212 11/!$ 226 12>!/!.eptemer 21$ =6>1 2//=6 =/21>
Octoer 2/= 6=12 16$1= $ &o*emer 2/2 $!=1 11=2/1 2$=1>/
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Decemer 22= !61 =/2>12 16=1Hanuary 22>= /== 1!!6=/ 1=/$12
Feruary 226 /22 =>/6> 1>6=+arch 22>2 6!2 1!$!1> 211>
April2!1/-1 2/1$ $!1 116!6 2$1/$>+ay 2// $>!! 1/$=!2 //6/=Hune 2/$ 6=12 16221 6=2Huly 2/> 6>2 1$/6 2!22/
August 2!> 1=> 1//26 $1>1!!.eptemer 226 6! 162 $>/$1
Octoer 22$ /!6 11>1 $//>/= &o*emer 22 /= 1=1/1 $=>=/$Decemer 2>/ $!2 1>626$ $62/Hanuary 2$!$ 661 1=1=!$ $>6>=1
Feruary 2$!$ /6= 1>6! $/!>$
+arch 2$/ >!2 1=6=> 6!>6>6April2!1-1$ 2$$ >!> 216$1 !6=
+ay 26! 616 1=>/2 $>!!$6Hune 2$=> // 1=/112 $$2$11Huly 262$ /$ 1=/!$1 $!>$>Q 2//1 6226/ 1/!/11/ /=/66>/
&L12+ean 1=62 $!22
a LY(QGt )2 (QMt) - (QGt)(QGtMt)Z [Y &(QGt2 - (QGt)2Z
aL16!/6
LY&(QGtMt) - (QGt)(QMt)Z \ Y&(QGt2) - (QGt)2Z
L1!!!2
(he (est of Sinificance of Estimate Parameters
e ha*e estimated the parameters 9a’ and 9b’ in regression e5uation o4 t3o *ariale
regression e5uation and ha*e also discussed the use o4 the estimated regression to estimate
the *alue o4 Y ('I) 4or a gi*en amount o4 crude oil price
(X). The 5uestion that no3 arises is ho3 reliale is the estimated *alue o4 coe44icient or
ho3 3ell does the estimated regression line 4it to the oser*ed data For e8ample since b =
1.00027 an increase o4 1 in crude oil price 3ill cause an increase in 'I o4 appro8imately
1!!!2 o3 4ar is this conclusion reliale The techni5ue that is used to ans3er this
5uestion is called test o4 statistical signi4icance
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The process o4 a testing o4 statistical signi4icance egins 3ith maing a hypothesis that
estimate b = 0. This is called 9&ull hypotheses It means assuming that there is no
relationship et3een M and G The tas is no3 to accept or re%ect the hypothesis I4 null
hypothesis is accepted it means that there is no relationship et3een M and G or in other
3ords the *ariation in M ('I) is not e8plained y the *ariation in G On the contrary i4 the
null hypothesis is re%ected it means that estimated ] ! and that ^ ! signi4icantly The tas
no3 is there4ore to test the null hypothesis In 4act the tas is to 4ind the proaility o4
re%ecting the null hypothesis The proaility o4 re%ecting a hypothesis is no3n as 4inding
the le*el o4 signi4icance The rule in this regard is that i4 the le*el o4 signi4icance is $ per cent
or less then the hypothesis is re%ected It means that i4 the le*el o4 signi4icance is $ per cent
or less then the estimated coe44icient is statistically signi4icant That is i4 estimatedcoe44icient is statistically signi4icant at $ per cent le*el o4 signi4icance then it is concluded
that G ( 0rude oil price) is a signi4icant determinant o4 M ('I)
Calculation of Standard Error of Coefficient
GtGt L (Gt @ G-Mt ('I (0rude
monthly) 'rice ) MtS et LMt @ MtS (Mt @ MtS)R )2
April2!!-!$ 1$1 22$1 16>$6 -16>6 2>1/ 66!+ay 1$1> 266! 126$ -2!>$ /6! $$6=Hune 1$2 2>= 1$ -21> 6>> 2!!Huly 1$/1 226 1//1 -2!21 !>/ $26=6August 1$/ 2>6 1$1 -2111 $$/ //!.eptemer 1$ /1/ 1/= -226= $1 /$62=Octoer 1$= /!$! 16$$ -1>6$ /6 />>!
&o*emer 1$>2 /!=2 16= -1> /$22$ /2/2Decemer 1$>$ 2/2$ 16=/! -1!>! 116$6 21Hanuary 1$>6 2!2 1!! -11 1/1> 6>621
Feruary 1$>6 2$=2 11= -1// 1>6> $=!2+arch 1$=1 2/>2 16=> -1! 11$=2 6=6/April2!!$-!6 1$== 2>2 1!> -1!= 12!2 6=/+ay 16!/ 26=$ 1/!! -12! 16122 $12=Hune 16!> 266/ 126> -11>> 11! $$62>Huly 1611 2/== 1!! ->= =>6 6>>August 161 2$!1 11!6 -=/6 >$$ 6/$/2.eptemer 161 2= 1!> -=1 >/> 666Octoer 162$ 2!!$ 1661! -/6! 12=/ =!==6
&o*emer 162/ 1>2 162> -1=> /= 1!22
Decemer 161> 1>2 162> -2> 61 1!22Hanuary 161 1>=2 16= -/= 1$2 ==1
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Decemer 1=2 $$!$ 2!11! -/=! 1$2$ 2//Hanuary 1=6/ 6!61 2!66 -1!/ 1!6 1!>!Feruary 1=6 $>=$ 2!$!1 ->61 !6 62=+arch 1=6> 6!!1 2!6! -=2 >$>6 =$=/
April2!11-12 1== 6!6 21/12 -112 1==/2 2>/+ay 2!1/ 6// 21//= -12!= 1612 2=2=!Hune 2!/1 66=! 212=6 -=>6 =1> 2>/Huly 2! 12= 21/$ -1//$ 1>2! 1/August 2!$/ !> 216=/ -116/ 1/$2 2661.eptemer 2!> 6!= 2!!! !>! !6$ 11$!1Octoer 2!> $26 2!//2 $/> 2>== =62
&o*emer 2!=1 $>! 2!/>6 $2 2$! $$2Decemer 2!> 6!/ 2!6! 2!! !1 1!2$!Hanuary 2!>> $262 1=>6 1!1/ 1!2$/ $>Feruary 2!>= $6= 2!2$$ 6/$ !/> /=/+arch 2!=> 6!26 2!6/2 /> 121 1!!>=April2!12-1/ 211$ 6$> 211$ -!! !!! 2//!!+ay 212/ 6$6 211>2 !> !2/ 216/Hune 212/ 6>1! 2116 -1>6 /$ /1=>$Huly 21/6 2$> 21>6 -$! 2$! $!!1August 21/> 6>= 21$!/ -12/ 1$1 /$1/.eptemer 21$1 > 22!> -$ /2=$ 6!/1Octoer 21$2 =// 22$/= -1!1= 1!/> >6$
&o*emer 21$= >=1$ 2/$21 -1=/1 //!/ 1$1$>=Decemer 216 >=2 2//=> -1$> /!=1= 12162Hanuary 21>1 >=$2 2/$$> -1> /!$! 1$>Feruary 21== =216 2/>22 -1>/2 //$>! 1$=/+arch 22$$ ==6 2$>/ -2!// 1/1> 2$6$April2!1/-1 22>$ 1!$ 2$1> -2// $6= /!>6/!+ay 2/11 12!=1 266=> -/$>> 12>$6 ==!Hune 2/> 12=2 2$>! -/>!! 1/62 6/2!=6Huly 2! 1/2 2>$$ -/>$$ 1>$> 66$=August 212 11/!$ 2$=12 -1=2 /211$ /=>1.eptemer 21$ =6>1 22>> -1/> 1>= 211!Octoer 2/= 6=12 21$1> 2/>2 $66 /$/>
&o*emer 2/2 $!=1 1=6=6 /2 1/>6$ !>Decemer 22= !61 1>666 /! 1>$2/6 =22Hanuary 22>= /== 1=!! />>6 1$!==$ />6Feruary 226 /22 1>=2 />// 16=!6 >=+arch 22>2 6!2 1=2! /61/ 1/!$2! 16!April2!1-1$ 2/1$ $!1 1=61= /$/1 126>6 !!1+ay 2// $>!! 2!!6 /!2 =1$2 6!6$
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Hune 2/$ 6=12 21$1 1=>/ /=/! /$2!Huly 2/> 6>2 21!>> 2>2 />/ 21/2August 2!> 1=> 21>! 226 $1>!> /66.eptemer 226 6! 21/6 2>> >/1$ /!$6Octoer 22$ /!6 21=12 2//> $6 $22!6
&o*emer 22 /= 22/$ 2/$ $6/=> />$!Decemer 2>/ $!2 221!> 222 112 61$!Hanuary 2$!$ 661 2226 2>/ $ 6=66!Feruary 2$!$ /6= 21=$ /!$ =$/1 $$12$+arch 2$/ >!2 22!> 2=/2 >$=! 2==Q 2//1 6226/ -!2 /666! >!=>=6=
&L12+ean 1=6266= $!21$$6
. L !!6!=!2tLK. 16226
&o3 that 3e ha*e otained the *alues o4 t3o test-standard error and t-ratio-3e use them
4inally to test the null hypothesis that is there is no relationship et3een M ('I) and G
(0rude oil price) To test the hypothesis 3e need to per4orm statistical t test ie to
compare the computed t @ ratio (162) 3ith the critical t *alue 3ith di44erent degrees o4
4reedom
The degrees o4 4reedom is e5uals n @ L 12 @ 2 L 122 The critical t *alues 4or di44erent
degrees o4 4reedom are gi*en in the t @ tale The t test is usually per4ormed at $ per cent
le*el numer 122 under the degrees o4 4reedom hen 3e lin 122 3ith $ per cent le*el o4
con4idence under the column !!$ 3e get critical t *alue as 1=6 4or the so called 9t3o @
tailed test The *alue o4 t that 3e ha*e calculated in our regression analysis is 162 This‟
*alue o4 t (ie 162) 4ar e8ceeds the critical t *alue (ie 1=6) at the $ per cent le*el o4
signi4icance
There4ore the null hypothesis that 9there is no relationship et3een M ('I) and G (0rude
oil price) is re%ected The re%ection o4 null hypothesis at $ per cent le*el‟
o4 signi4icance means that there is a statistically signi4icant relationship et3een M ('I) and
G (0rude oil price) +ore precisely 3e arri*e at the conclusion that 3e are =$ per cent
con4ident that there is a statistically signi4icant relationship et3een M ('I) and G (0rude
oil price)
and 0rude oil price
Analysis of 8ariance
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The #egression .tatistics Tale or model summary gi*es the o*erall goodness-o4-4itmeasuresB # 2 L !6> The 0orrelation et3een dependent *ariale M and independent*ariale G is r L` (# R) L!>2=> The standard error here re4ers to the estimated standard
de*iation o4 the error term et It is sometimes called the standard error o4 the regression Ite5uals .#T (..K (n-))
E*ESSI!N C!EFFICIEN(S (A%$E
0oe44icients .td rror t-statistics p-*alue
Intercept or (0onstant)
16!/$ //1> 2$$> $-$
0rudeb'rice 1!!!26 !!6!=!1 162 1!-/2
The population regression model isB y L a P 8 P e t
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_ The 4itted line is M L 16!/$P1!!!2WG
_ The slope coe44icient has estimated standard error o4 !!6!=!1
_ The slope coe44icient has t-statistic o4 162
_ The slope coe44icient has p-*alue o4 1!-/2
_ The standard error o4 the regression is 1// 0orrelation et3een 'I and 0rude oil prices L !>2=>
_ # 2 L !6>>$ < Ad%usted # 2 L !6>6!_ The regression model is
) = 263.5/04 2.55590+
There is a strong positi*e correlation et3een 'I and 0rude oil prices
For deri*ing elasticity co-e44icient o4 dependent *ariale doule log natural regression model
3as used One attracti*e 4eature o4 doule natural log model is that the slope coe44icient 9 ‟
measure elasticity M 3ith respect to G that is percent change o4 M 4or a gi*en percent change
in G
The regression is carried out using excel software package has three components:
_ #egression statistics tale or +odel .ummary
_ A&OVA tale
_ #egression coe44icients tale
.J++A#M OF #7#..IO& OJT'JT
Regression Statistics
+ultiple # !>>61$># .5uare !>$26Ad%usted # .5uare !>/$16
.tandard rror !!2/=Oser*ations 12
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A&OVASignificance
df SS MS F F #egression 1 2/12/!$ 2/12/ 612/ 12$>-2
#esidual 122 !6!1>!6= !!!$2Total 12/ 2=>11
Standard
Coefficients Error t Stat !"a#$e
Intercept 2/!2>6 !!=$26/ >$12 11-11!:n( 0rude
price) !2/$>$ !!12=$21 21122= 1/-2
There4ore the doule log regression model sho3s that the crude oil price elasticity o4 'I is
!2 and it is positi*ely correlated Thus our natural log @log regression model is$nB) = 6.9/5973 5.90/474 $nB+.
&ypothesis:
!1 B 0rude oil price plays an insigni4icant role in rising 'I o4
Indian economy
11 B 0rude oil price plays a signi4icant role in rising 'I o4
Indian economy
In the analysis o4 data 4or testing hypothesis 1 e ha*e 4irst calculated ,arl 'earson s‟
correlation co-e44icient et3een crude oil price and 'I It is 4ound that there is a positi*e
correlation e8ist et3een crude oil price and 'I and *alue o4 r L!>2= Then 3e ha*e run
4irst model y considering entire data sets considering 12 oser*ations comprising o4 'I
and crude oil price Tale- =1 presents the regression results
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esults of reression analysis:-
Regression Statistics
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price hie o4 petrol in India The solution lies in 4inding an alternate source o4 energy
Though the idea is good it is not a practical approach to this hea*ily discussed issue
Another solution that can e implemented is to create a3areness among pulic aout the need
to increase the use o4 pulic transport This is only *iale solution in 4ront o4 us
nergy is the prime mo*er o4 economic gro3th and is *ital to the sustenance o4 a modern
economy Future economic gro3th crucially depends on the long-term a*ailaility o4 energy
4rom sources that are a44ordale accessile and en*ironmentally 4riendly
eferences:
Alha%%i A F and uettner Da*id (2!!!) O'0 and orld 0rude Oil +arets 4rom 1=/to 1==B 0artel Oligopoly or 0ompetiti*eU The
nergy Hournal Vol 21(/) pp-/1-/ Anderson #& (1==>) Oil 'roduction in the 21st 0enturyU
.cienti4ic American Vol 2> (/) pp >6@=1
Anderson Da*id # .3eeney Dennis H illiams Thomas A(2!!>) .tatistics 4or "usiness and conomicsU .outh estern a part o4
0engage :earning Third Indian #eprint pp$$/
AD" (2!!$) The 0hallenge o4 igher Oil 'ricesU Asian De*elopment Outloo 2!!$Jpdate part-/ pp66-6
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