BEHAVIOR OF THE GLOBAL OIL MARKET (1995-2008) AS DESCRIBED BY A SYSTEM DYNAMICS MODEL

Abstract

Energy largely determines the characteristics of the global economy, hence the importance of fully understanding the behavior of the oil market in its current geo-economic and political environment. Starting from the basic relations of the global oil market and their interactions with macroeconomic variables, a nonlinear dynamic, structural and systemic model for this market is developed, which simulates the price, production and consumption of oil, and the accumulation of inventories. Model tests show satisfactory performance in the simulation of the known past in a medium-term horizon, 1995-2008. Asensitivity study performed for the same period yield some interesting conclusions about the behavior of the global oil market, such as the irrelevance of the structural factors in the soaring rise in oil prices in 2008.