Statistics in oil and gas industry

Cuevas-Cubria & Beaini (2010) discuss the fluctuations in oil and gas prices and the national and international events that are correlated to the price fluctuations. There was an increase in the average price of West Texas Intermediate crude; this increase pushed the price 17% higher than it was in early December 2009. The higher prices for crude oil were linked to the macroeconomic changes taking place in the Asian and Middle Eastern economies. The higher oil prices run counter to the decline in consumption taking place in the United States.

The growth in oil demand is fueled by the oil consumption in non-OECD countries. The growing middle class and the desire for consumption goods, in particular vehicles has increased the demand for fuel in China and India. This combined with the enforced shutdown of coal-fired power stations promises to again increase the demand.

The OECD countries have a differential position as it relates to consumption of fossil fuels. While consumption is declining in Europe the increased consumption in America and Canada pushes the rates of consumption higher. So that while European consumption is projected to decline by 1%; in America and Canada it will increase by 1. 4%. The decline in consumption is linked to the slowdown in the global economy.

Another aspect of the puzzle is related to the question of oil output itself. OPEC plans to increase output thus stabilizing the price of oil. Additionally political stability in Nigeria has created increases in the output from those fields. While production appears to be slowing and plateauing in some countries; in Australia crude oil and other products will increase by 14%. Fluctuations and previous losses in the Australian gas industry have been offset by recent increases. Generally the picture for the price of oil appears to be that oil price will continue to increase as demand outstrips supply.

A normal distribution describes a specific type of distribution where the density of the curve in the tails is less than in the middle. When data are normally distributed there are specific expectations and predictions as to the percentage of the population that would be with a number of standard deviations from the mean. The curve is described as bell shaped; the mean, median and mode are all in the center of the distribution. The data described in this study were not normally distributed. The measures of central tendency presented for the price of oil, described an average price of $79 per barrel. This average price represented the central point for oil based on summing all of the gas prices and dividing by the number of prices collected. The main reason the price for oil could not be normally distributed could be the number of samples selected. While the study did not identify the size of the sample, it the sample size was large enough the price would have been normally distributed.

Additionally oil prices are linked to political events around the globe. The line graph suggested a linear relationship between the price of oil and political events. The increases in the price of oil were linked to negative political events. Negative political events are events that threatened the political stability of regions or of specific countries. When these events occurred there was a tendency for the price of oil to increase along with the conflict or instability. Additionally, there was a decline in the price of oil when there was a fall in the economies of countries. A reduction in the demand for consumer goods would reduce the demand for oil and oil-based products. When there was worldwide negative phenomenon such as a recession, this would also reduce the demand for oil and consequently the price.

The relationship between these variables while not measured in the study was clearly described. Based on the description it would be reasonable to conclude that there should be a negative relationship between oil supply and the price of oil. A negative relationship would mean that as the supply of oil increased the price would decrease. This increase in one variable, while the other decreases adequately describes a negative correlation. This is offset with the positive relationship between demand and the price of oil. As the demand for the product increases across the globe the price of the product increases. Throughout the article the authors demonstrate these correlations and infer the relationship between them without providing a correlation coefficient.

The final element of the study that will be discussed is that of the hypothesis. A hypothesis is a statement of the relationship between the two or more variables. This statement is usually tested statistically to show whether the hypothesis should be accepted or not accepted. There are two hypotheses the null and the alternate. The null hypothesis suggests that there is no relationship between the variables, or no difference between groups. The alternative is the opposite of the null and is generally the hypothesis that the researcher wants to prove or support.