Inventory demand for crude oil

Al-Mubarak, Nabeel Abdulaziz (1990) Inventory demand for crude oil. University of Southampton, Doctoral Thesis.

Abstract

In this thesis I construct a model of inventory demand for crude oil, to look at the behaviour of inventory demand in four countries, U.S.A, Germany, Japan and U.K. After a brief description of the oil market structure, the thesis outlines some of the general models on inventory theory. A survey of the literature concludes that few attempts were made to model inventory demand for crude oil, and those principally related to the U.S. I then set out a model based on the assumption that consumers are not faced with any fixed costs associated with placing orders and that they can order at discrete moments of time. The model is estimated for U.S.A, Germany, Japan and U.K. The estimation is based on data spanning 1980(1) - 1987(9). The expected consumption variable used in estimation was estimated using two models for consumption expectation, one based on firms' past demand growth experience, the second based on a model for demand of products. A number of tests of specification, including forecast performance, are applied, and with few expectations, the model passes these tests. An alternative model is considered based on the assumption that there are costs of ordering, but unit costs decline with the size of the order. This model is the familiar (S,s) model and its econometric specification follows closely the work of Blinder. I subjected the (S,s) model to the data for the four countries, but the results were not encouraging and in comparison to our model it did not behave well.

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