World Oil Price Volatility And Its Formation Mechanism

Oil is an important energy source and a necessary industrial raw material.Every country's economic growth and the daily life of its people are dependent on it. Obtaining control of oil has been become the target of many countries.The main points of this thesis are: as a special goods, although oil price always fluctuates in a certain band due to political, military and sudden affairs, oil pricing still follows the Law of Value. In the short run, fluctuation in the oil price causes little change in oil demand, but in medium and long terms, with the development of alternative energy sources and improvement of power-saving technology , a slight shake of the oil price may cause oil demand to fluctuate by a wide margin.Autoregressive Process (or AR Process), a useful tool in time-series models, is used in this thesis to demonstrate features of price fluctuation in international oil markets and to find out what causes such fluctuation. From the unit root test results of average price of three major international oil and their average monthly profit, wecan see that the {Rt} sequence has a unit root process while the {Rt} sequence is stationary and exists autocorrelation. After comparison, AR (1) process performs well than other models to illustrate this autocorrelation existing in the {Rt} sequence. At the same time, we can find that the oil price has a positive transitivity and only the price of last period affects the current one.China has become a large oil consumer and a net oil importer. The amount of consumption and import of oil has been increasing year by year. The degree of dependence on the international oil market is up thirty percent. The domestic oil market is easily affected by price fluctuations. To avoid the negative impact of drastic oil fluctuations in domestic oil markets, oil-pricing policy needs to be improved and the oil marketization should be moved forward. To evade the risk of price fluctuation, it is urgent to build strategic oil reserve system, which will effectively control the impact of fluctuation in oil price. In addition, domestic oil companies should be involved in crude oil forward markets and diversify source of energy supply. At the same time Chinese enterprises are to be encouraged to go abroad to cooperate with large foreign companies to exploit oil energy.