Abstract for: Supply and Demand Dynamics of the Oil Market: A System Dynamics Approach

In this paper, we propose a revised model of the global oil supply and demand based on the system dynamics methodology. We investigate the effects of unconventional variables on the oil price, many of which are generally ignored in the traditional oil market models. These variables are the expectational variables that are formed based on the expected trends of the major determinants of the market. We model the oil price to follow the expected global oil supply to demand ratio, instead of their actual values. That is, based on the events that happens on either side of the market, whether or not the supply or demand, the influences of the events are quantified and subsequently, the related variables are initialized with proper values. That in turn affects the expected trend of supply or demand, which forms the oil price eventually. For our simulations, we consider the events of the 2015 year and analyze the events occurred in the 2015 including the reports on the Chinese economic growth, the conflicts in the Middle-East region, the US oil supply changes and various other events which form our model. Our results prove the efficiency of our model in predicting the trends of the price, supply and demand.