Modeling and forecasting the demand for crude oil in Asian countries

This study examines the growth in oil demand in selected Asian countries over the 1982- 2002 period. In particular, it analyses GDP and price in relation to oil demand. The demand for crude oil imports for the Asian countries. Which will be divided into four groups: first, Newly Industrializing Economics (NIEs) e.g. Hong Kong, Taiwan, Korea, Singapore, Indonesia, Malaysia, the Philippines and Thailand, as one group; second, OECD countries (Japan, and South Korea); Third is China fourth, South Asia (India and Pakistan). These groups are divide according to geographical location and similitary of economic status. The demand function will be estimated using cointegration analysis and an Error Correction Model (ECM). There are however, three approaches for estimating the ECM: the Engle-Granger’s two-step procedure; General to specific Hendry's type of testing; and the Autoregressive Distributed Lag (ARDL) approach of Pesaran et al. (1999, 2001). First the stationarity for all the variables will be tested followed by the use of the Autoregressive Distributed Lag (ARDL). This test has the advantage of its applicability irrespective of the different integration level. The ARDL procedures involve two stages. The first stage, is testing the existence of the long-run relation between the variables using "the Bound testing approach" (Pesaran, et al 2001). The second stage of the analysis is to estimate the coefficients of the long run relations and to make inferences about their values using the ARDL approach. Finally, the ARDL model is used to forecastle the crude oil consumption for the years 2006-2010. The paper concludes that GDP and Price are significant variables in demand for oil. However, elasticities of demand were low indicating the importance of Asia’s crude oil to the economies of the Asian countries. When the estimated model was used to forecast crude oil demand, it was found that GDP growth is an essential factor in the increase or decrease of crude oil demand by Asian countries. China has the largest demand for crude oil followed by Japan; South Korea; NIEs; India and with Pakistan being last. Recently, China, India and Pakistan show a high growth rate of oil demand