Time Vary

TABLE OF CONTENTS
SI. PARTICULARS PAGE

NO NO.
1. INTRODUCTION
1.1 Crude Oil Industry 1-3
1.2 The Impact Analysis 4
2. REVIEW OF LITERATURE
2.1 Inverse Correlation 5
2.2 Positive Correlation 5-6
2.3 Literature Review 6-8
2.4 Statement of the problem 8-10
2.5 Objectives of the Study 10
3. RESEARCH METHODOLOGY
3.1 Conceptual Framework 11
3.2 Research Design 11
3.3 Sources of Data 11-12
3.4 Sample Size and Justification 12-13
3.5 Econometrics Modeling for the Hypotheses 13-17
4. GOBAL OIL SCENARIO
4.1 Classification of Crudes 19-20
4.2 Structure of the industry and global oil production 20-22
4.3 Global oil consumption 22-24
4.4 Indian Scenario. 24-29
5. SWOC ANALYSIS OF STOCK MARKET
5.1 Strength 30
5.2 Weakness 30
5.3 Opportunities 30
5.4 Challenges 30-31
6. Result and Analysis
6.1 Crude 32-34
6.3 SENSEX 34-41
6.3 WALD test 41-43
6.4 Arch Effect 43-45
6.5 Arch Effect in SENSEX 45-46
6.6 Normal Gaussian Distribution 46-48
6.7 Student t Distribution 48-50
6.8 GED with fixed parameter 50-52
7. CONCLUSIONS 53
REFERENCES 54
A TIME VARY CAUSALITY BETWEEN CRUDE AND STOCK
CHAPTER 1
INTRODUCTION
The variable and complicated relation between monetary factors pulled in the
scientists, strategy creators and businessmen. Here the paper is endeavored to identify
the complex connection between stock returns and oil cost. These factors have seen
noteworthy changes after some amount of period and consequently. Here day by day
information from April 2007 to November 2016 which is 2,852 information on month
to month premise is selected. Utilizing systems of time arrangement, the review tries to
catch correlation between factors by using VAR and combination strategy. In this
review two models are going to tried, one with worldwide unrefined market and second
is residential crude market. Keywords: VAR-Vector auto regression; Unit root tests;
granger causality test; Co-integration.
Oil is vital vitality and essential crude product as far as the economic condition
of any country is concerned. There is a huge impact of crude value instability on
monetary exercises. Oil cost has high unpredictability and its effect on creating nations
cannot be overlooked. Annualized value instability for unrefined petroleum is around
25% every year while natural gas unpredictability is roughly 40% every year [2]. The
cost of raw petroleum is probably going to be a wellspring of hazard for stock returns.
This worry is especially significant in creating vitality purchaser nations like India for
which total amount of crude which is imported is increasing by the time. Though the
monetary effect of oil value instability has its macroeconomic execution, as a
miniaturized scale scope, its effect starts with influencing the conduct and execution of
smaller scale level, for example, its effect on the share cost insecurities exchange
1.1 Crude Oil Industry
Crude oil is one of the most necessitated worldwide required commodity. Any slightest
fluctuation in crude oil prices can have both direct and indirect influence on the
economy of the countries. The volatility of crude oil prices drove many companies
away and it’s impacted the stock market also.
Crude oil prices act like any other product cost with more variation taken place during
shortage and excess supply. Studies have conducted to analyze the impact of rise in
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crude oil price to the economic growth in the OPEC (Organization of Petroleum
Exporting Countries) countries.
Any massive increase or decrease in crude oil has its impact on the condition of stock
markets in throughout the world. The stock exchanges of every country keep a close
eye on any up and downward movement of the crude oil price.
India fulfills its major crude oil requirements by importing it from oil producing
nations. India meets more than 80% of its requirement by importing process. Therefore,
any upward and downward motion of prices are closely tracked in the domestic
marketplace. Many times, it has been recorded that prices of essential products like
crude also acts as a prime driver in becoming reason of up and down movement of
price.
Any fluctuation in crude oil affects the other industrial segments also. Higher crude oil
price implies to the higher price of energy, which in turns negatively affects other
trading practices that are directly or indirectly depends on it. Crude Oil has been traded
in throughout the world and their prices are behaving like any other commodity as
swinging more during shortage and excessiveness.
In the short term, price of crude oil is influenced by many factors like socio and political
events, status of financial markets, whereas from medium to long run it is influenced
by the fundamentals of demand and supply which thus results into self-price correction
mechanism.
There are innumerable factors which influence the price movement of crude oil in
throughout the world. Like methods and technology using for increasing the oil
production, storing up of crude oil, changes introduced in tax policy, social and political
issues, demand & supply etc.
The crude oil prices have been buffeted by many factors, which are summarized as
below
 Production: The OPEC nations are the major producer of world's crude oil.
Therefore, every policy made by such countries related to the crude oil prices
have their influence on crude oil prices. Any decision taken by OPEC nations
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for increasing or decreasing production of crude oil impacts the price level of
crude oil in international commodity markets.
 Natural Causes: In prevent years, global community have witnessed many
events which in turns have volatility effects on the price level of crude oil. Like
hurricane katrina and other type of tropical cyclone have hit the major portion
of globe, which as a result driven the crude oil prices to reach at its peak.
 Inventory: In throughout the world, oil producers and consumers get stock their
crude oil for their future requirements. This gives rise to speculation on price
expectations and sale chances in case any unexpected thing cracks during supply
and demand equations. Any upward or downward movement in inventory level
shoots up volatility in price index of crude oil, which generates lot of changing
movement in Sensex.
 Demand & supply: With a sharp rise in economic demand, requirement of
crude oil is increasing to manifold in context to the limited supply.
The high demand economies of crude oil are putting undue pressure on the available
fixed resources. The major gap created between demand and supply of crude oil is
forcing the price curve of crude oil to rise in upward direction.
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1.2 The Impact Analysis
The crude oil price impacts two key aspects of our economy
1. The import bills
Since, we are a net importer of oil. The increasing import bill will widen our Trade
Balance, defined as Exports minus Imports, which has been perpetually running at a
deficit and possibly wipe out our current account surplus, which is Trade Balance minus
Net Invisibles, which has turned from deficit into surplus over the last few years. Higher
trade balance will adversely impact the fiscal deficit, which in turn will impact the
interest rates. Hence, the stock market is impacted
2. Inflation
Since petroleum products are key constituents of Wholesale and Consumer Price
Inflation Index. Higher import bill directly and indirectly impacts the rupee, while
inflation impacts interest rates, and hence even the rupee. These factors obviously affect
our GDP growth rates.
All these factors individually and collectively could have a negative impact on the stock
market.
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CHAPTER 2
LITERATURE REVIEW
From a trial perspective, an impressive academic and master composing, especially in
the created countries e.g. Australia, America, etc. explores association among different
factors like share market and crude cost. Due to expansion in cost of crude, the stock
price affects in both ways, in favor or against. Invigorate, the ascending in oil costs
have valuable results on creating developing business sector economies that convey oil.
2.1 Inverse correlation:
Stock and crude Some tests have proved that there exists negative association between
stock and crude. The hike in crude price inversely affects the economics of some
organization for which crude is directly related. If this loss is not fulfilled by these
organizations by any means it will be the reason for decrease in stock price (Al-
Fayoumi, 2009). This change is fast or slow based on the profitability of the stock trade.
Plus, the countries which are major oil importer has to cop up with hike in crude cost,
growing risk, in security brought on by oil esteem flightiness which antagonistically
impacts stock expenses.
Yet again, oil esteem climbs is much of the time is responsible to ask government
organizations to handle this climb. Jones and Kaul (1996) reveled that Japanese, US,
UK and Canadian stocks are inversely related to crude. Valadkhani et al. (2009)
examines the effects of global stock market and different macro-economic elements on
Thai market utilizing a GARCH-M during 1988- 2004. The inverse/negative relation
between stock and other variables is found. Fills (2010) states that there exists contrary
influence between crude and Greece market. The same is also supported by Miller and
Ratti(2009) and Basher et al. (2012).
2.2 Positive correlation:
Stock and crude Due to some economic blast, the overall demand gets high and
responsible for hike in basic row products like crude. Increase in crude price is
depended on emphatically influence stock market for crude exporter countries.
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Furthermore, due to high crude price there will be brisk trade of wealth from crude
importers to crude exporter’s consequent additional salary. If this wage is used to
purchase stock and ventures locally, the resulting effect is period of amore raised
measure of money related activity and change of securities trade returns in those
countries.
2.3 Literature Review
Sadorsky (2001) has depicted that there is a positive connection among stock, crude
and other variables. He concluded that some organizations of Canada are highly
depending on crude price fluctuations. Boyer and Filion (2004) have found that stocks
and crude are positively related. For USA, the same relationship is supported by
Hammoudeh and Li (2005). For Indian market, crude and stocks are correlated in long
run which is supported by Granger causality test by Sahu etal. (2012).
There are numerous researches having different findings in the field literature that
consider the relationship between oil prices and stock returns. In his study, Sadorsky
(1999) examined the relationship between shocks that occurred in oil prices in U.S.A
and the stock exchange. As a result of the study performed in the period between 1947-
1996, in which VAR and GARCH analyzes were applied and interest rate and industrial
production output were included, it was revealed that oil prices and volatility in the oil
prices play essential role in affecting the returns of stocks and shock volatilities that
occurred in oil prices have asymmetric effect on the economy.
Papapetrau (2001) in his study investigated the dynamic relationship between oil price
shocks, stock exchange (stock prices) and economic activities (interest rate, work force)
in Greece. As a result of the research study performed in the period between 1989-1999
and where VAR analysis was applied, it was determined that the changes in the oil
prices affect the real economic activities and are important factors in studying the stock
exchange price movements of oil price.
In his study Maghyereh (2004) looked into the interaction between shocks that occurred
in oil prices and stock markets of relevant countries. According to the results of the
study, it was found that shocks that occurred in oil prices did not have meaningful effect
on stock index returns of developing countries.
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Sari and Soytas (2006) examined the relationship between crude oil price, stock return,
interest rate and output within the period 1987 -2004 in the scope of Istanbul Stock
Exchange (ISE). According to the results of the research, shocks that occurred in oil
prices did not have meaningful effect on stock returns.
In their studies Anoruo and Mustafa (2007) looked into the relationship between oil and
stock market returns in the period 1993 -2006 in U.S.A. According to the result of the
study, in which co-integration test and VECM model were used, it was revealed that
there was a long term relationship (cointegration) between stock market and oil market
and there was a one way causality relationship from stock market returns to oil market
returns.
Park and Ratti (2008) looked into the effect of the shocks that occurred in oil prices on
stock exchange returns in the scope of U.S.A. and 13 European countries. In the study
performed for the period 1986-2005 and in which VAR model was used, it was
determined that price shocks that occurred in general basis had effect on stock exchange
returns, oil price increase in Norway also increased stock exchange returns and increase
in volatility of oil prices in many European countries except U.S.A. had negative effect
on stock exchange returns.
In their research, Cong, Wei, Jiao and Fan (2008) examined the interactive relationship
between shocks that occurred in oil prices and stock market in China. In the study
performed in the period between 1996 and 2007 and where VAR model was used, it
was revealed that shocks that occurred in oil prices did not have meaningful effect on
stock returns and some important shocks that occurred, negatively affected the stocks
of oil companies.
Miller and Ratti (2009) investigated the long-term relationship between world crude oil
prices and international stock exchanges. According to the results of the study
performed within period of 1971-2008 (separated based on periods) in the scope of
OECD countries and in which VECM model was used, it was observed that there had
been a long term relationship between variables between periods 1971-1980 and 1988-
1999 and the stock exchange had responded negatively to the increase in oil prices in
the long term.
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In his study Oberndorfer (2009) looked into the relationship between developments that
had occurred in energy markets in Euro zone and prices of energy stocks in Europe. In
the research performed for the period 2002-2007 and in which ARCH and GARCH
analyzes were applied, it was revealed that increases in oil prices negatively affected
European stock returns, and volatilities in coal prices affected stock returns, but did not
have a big impact as much as oil price, and the natural gas had no effect on the prices
of energy stocks.
Arouri, Lahiani and Bellalah (2010) examined the relationship between shocks that had
occurred in oil prices and stock returns by using linear and non-linear models within
the period of 2005-2008 among countries exporting oil. According to the results of the
research, it was revealed that stock returns in Qatar, Oman, Saudi Arabia and United
Arab Emirates had responded to changes in oil prices, though change that had occurred
in oil prices in Bahrain and Kuwait did not affect the stock returns.
In his study performed in the scope of Greece, Filis (2010) looked into the relationship
between macroeconomic factors (customer price index and industrial production), stock
exchange and oil prices. In the study performed between periods 1996-2008 and in
which VAR model is applied, it was determined that long term oil prices and stock
exchange index had positive effect on customer price index, oil prices had negative
effect on stock exchange and oil prices did not have any effects on industrial production.
In the same way, no relationship was found between stock exchange and industrial
production. In the present study, co-integration and causality tests have been applied by
using daily closing values of BSE 500, BSE 200 and BSE 100 Index between years
2001 -2011 and crude price in order to test the causality relationship between stock
market in India and crude prices. It has been considered that the long time period which
constitutes the scope of the study and separate consideration of the relationships
between three fundamental index and international oil price distinguish the study from
other studies in the literature and would make an important contribution to the field
literature.
2.4 Statement of the Problem
Crude oil price is an important parameter for refining industries, which has a
bearing on economy, because it is vital input for productivity. There is a vast gap in
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demand and production of crude oil in India. National oil companies are able to produce
23-24% of India’s total requirements of crude oil. The production of crude oil from
public sector enterprises in India has been decreasing due to old and the maturity of the
fields.
India is not self-reliance on crude oil production; therefore, it is necessary and

inevitable to import the crude oil to bridge the gap between demand and supply. The
increase in international crude oil prices will make import costly and raise the Indian
crude basket price. Therefore, both international crude oil price rise and import
dependency on crude oil are the problematic area that may damage the Indian economy.
It is estimated that the import dependence of India associated with crude oil is
expected to 94% by the end of 2030. Therefore, the trouble water in Indian crude oil
demand and supply management is the rise in international crude oil prices followed
with the extent of the increase in crude oil requirement with respect to feasible higher
GDP growth 8% to 9%. The import dependence of India associated with crude oil is
from 76% in 2011-12 to 80% by the end of twelfth plan (2012-17). As crude oil prices
are rising globally and imports will be expensive, it is necessary to understand the
consequences of crude oil price rise on the economy. Therefore, there is an urgent need
to look holistic picture of whether the changes in Indian crude basket prices have any
implication on Inflation and GDP growth, or is there any link between Indian crude oil
basket price change and Inflation or Inflation is the cause of concern for slowdown of
GDP growth, what should be our strategy to meet the growing demand of crude oil for
economic growth. It is against this backdrop that we attempt, in this study, to critically
analyze the impact of the change in crude oil prices on Indian economy. Therefore,
there is an urgent need to look at holistic picture of investment in Brown field and Green
field projects in petroleum industry, use of new technologies in the area for Oil and Gas
business.
The desire of the study is to understand, how the increase in Indian basket price
of crude due to raise in international crude oil prices impact the economic indicators
like inflation and GDP growth. The essence of the study is to garner the understanding
of the causal relationship with the phenomenon of complexity of historic facts in crude
oil prices and social reality of economic development and economic growth. The study
is essential for both – knowledge and to help in solving problems of businesses arising
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out due to inflation, predicting the future price signal in relation to the business
environment and economic growth. No similar research initiative has been undertaken
in India that has focused on causal study and the impact of Indian crude basket price on
the economic indicators like the inflation and GDP growth of the economy.
The import requirement of crude oil is 73 – 76 % of total demand, which is

equal to 141.9MT for the year ending 2011-12 and growing annually at the rate of 2.9%.
To meet the demand, the crude oil is being imported from gulf countries through long
term contract and international tie up is essential to avoid any supply shock. The Indian
basket of crude comprising of the composition represents average of Oman & Dubai
for sour grades and Brent (Dated) for sweet grade in the ratio of 67.6:32.4 from 1st
April'2010.
2.5 Objectives of the study:
Based on the secondary data, literature review and the gaps identified, the
following objectives of study were framed. The objectives of study are as follows:
 To study and formulate the impact of crude oil prices on the whole sale price
index of Indian economy.
 To study the waves of inflation rate (consumer price index) due to change in
crude oil prices on the GDP growth of Indian economy.
 To examine and understand the direction of causality and to ascertain the causal
relation and linkage between differential change rate of crude oil prices and
Inflation, also between inflation vis-à-vis GDP growth of Indian economy.
 To study the impact of energy price relative to the productivity of capital and
labor of Indian industries based on the past data
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CHAPTER 3
RESEARCH METHODOLOGY
3.1 Conceptual Framework:
Crude oil is the fundamental building block among the primary energy which
dictates the overall energy mix in terms of its utility as basic input for economic growth.
Oil is often thought of first fall back energy resource. Its price is the basic unit for all
economic activities like agriculture, manufacturing, project evaluation directly or
indirectly, for calculating price of manufacturing articles, product prices, transportation
cost, service industry etc., even in pricing other forms of energy. Therefore, crude oil
price increase is viewed throughout the world as it has a bearing on all the prices of
final goods and services of the economic activities of the world. No economies in the
world, whether exporters or importers are de-coupled from the impact of the increase
of crude oil price. Crude oil price increase can be treated as the source affecting the
economy, it may be treated as the epicenter of earthquake in an economy, which has
the potential to cause catastrophe to any economy and can damage the business
activities, in worst condition, it can bring down to business and economic recession.
As oil price increase can influence the economy through two important routes.
First, with the increase of oil price in world market, i.e. Brent, WTI, Nigerian Forcados,
Dubai, Arabian light, Iranian light etc., the Indian crude basket price will also rise. This
price hike passes on to domestic refining petroleum product price, ratcheting up
domestic price levels, in turn WPI. In India’s WPI, for instance, the weight of mineral
oils (comprising POL price mainly) is 6.99% (base year1993-94) and it is increased to
9.36% (base year 2004-05). Second, Higher oil price would raise the variable cost of
industry. So, industries would seek to raise their product price to protect their profit
margin. Thus, overall product price level of all the commodities on all the sectors of
the economy will increase; hence raise the consumer price index level i.e. the inflation
rate. The Inflation rate has a bearing on GDP growth. Higher crude oil prices would
also impact balance of payments significantly. In sum, oil price changes affect several
domestic variables, occasion „economy-wide‟ effects and are a politically sensitive
ingredient for parliamentarians and policy makers. This is a quantitative and analytical
research. Data analysis is done mainly by statistical and econometrics methods
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(deductive process) to find out correlation between the dependent and independent
variables, also empirical relationship of the variables based on the objective and
hypotheses followed with Granger’s causality tests.
3.2 Research Design:
Research design is a blueprint of the study conducted, which includes steps of

data collection, sample selection, process of data and finally interpretation of the data.
The period of study is important in collecting the secondary data.
3.3 Sources of Data:
Secondary data sources have been used to collect information about the Indian
crude basket prices, wholesale price index, Inflation rate and GDP growth. Information
collected from Secondary data sources include Central Statistical Organization (CSO)
data of Indian Economy, RBI reports, Indian Economic survey reports, Petroleum
Planning and Analysis Cell (PPAC) data, reports and websites.
For deriving relationship between crude oil price and inflation (WPI) for our
loglog natural base regression model, WPI and Crude oil price data pertains from 2000
to 2009 have been used. Data on WPI has been taken from CSO data and the crude oil
prices have been taken from Petroleum Planning and Analysis Cell (PPAC) data. Gross
Domestic Product (GDP) growth rate (base year 2004-05) has been used from Reserve
Bank of India data source and publications. Data for inflation rate has been used from
trading economics statistics.
3.4Sample Size and Justification
The fundamental purpose of study is to examine whether crude oil price affect
inflation, if so, whether rate of change in crude oil price affect inflation rate and GDP
growth and what is the extent of impact. And finally, it relates to the issue of causality
test. Our study period is from financial year 2000 -2009 for the hypothesis 1, data have
been collected on monthly basis for both crude oil price and wholesale price index (base
year 1993-94=100) with sample Size 124. This period is important because so many
events have taken place around the world like soaring international crude oil price from
$24 (Jan-2000) and touched to $147.27 per barrel( 11thAug 2008). Disruption caused
by Hurricane Ivan in 2004, US government had announced on September 24, 2004 that
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it was prepared to lend some stocks from Strategic Petroleum Reserve (SPR). Traders
felt that the supply was too small and hence the price would tend to rise. As a result,
the Crude basket price of India went up to $39.21 in 2004 from previous year price of
$27.97, followed with bad monsoon in 2004. There was devastating hurricane Katrina
in 2005 in the history of US and thereafter hurricane Rita was the fourth most intense
Atlantic hurricane ever recorded and the most intense tropical cyclone ever observed in
the Gulf of Mexico. Rita caused $12 billion in damage on the U.S. Gulf Coast in
September 2005, followed by OPEC supply shock, Subprime crisis and bankruptcy of
Lehman brothers, fear of terrorist attack on oil installations in various oil producing
countries had added a premium to oil prices etc. and most important event in Indian
context is the second phase of reform and the dismantling of the Administered Price
Mechanism (hence forth referred to as APM) from 1st April 2002, Oil companies have
given the freedom to buy crude oil and sell their products at market determined prices.
Quarterly data were also collected for crude oil price change of India basket,
inflation and GDP growth base year (2004-05) of new series from 2005-06 to 2009-10
for carrying out the study with sample size 20. Further, Yearly data have collected from
1992-93 to 2008-09 (base year 199394) to examine whether a rise in the price of energy
relative to output leads to improve or decline in productivity of existing flow of capital
and labor for the study with sample size 17.
3.5 Econometrics Modeling for the Hypotheses:
The principal statistical tools considered for data analysis are using the Karl
Pearson’s Correlation Co-efficient, followed with econometrics modeling of regression
and causation. Correlation means a statistical relationship between sets of variables
none of which has been experimentally manipulated i.e. (crude oil price and WPI),
(Inflation and GDP growth). Therefore, Correlation means a relationship between un-
manipulated variables. It measures the strength of linear association between two
variables. Karl Pearson’s Correlation Co-efficient is used to study correlation between
two variables crude oil price and WPI, also Inflation and GDP growth. Often in practice,
correlation is followed by regression. The tacit assumption being, if we have established
that two variables are linearly or log linearly related then we may predict one based
upon the knowledge of other. The purpose of regression is also to study the model
relationship between variables, describing the relationship between the explanatory and
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response variable and has been addressed using the modeling framework and followed
by Granger’s causality tests.
Model-1
In an attempt to determine, the influence of crude oil price on the inflation of Indian
economy. The following time series regression equation was fitted.
Yt= a + bX + et ---------- (1)
Where Yt denotes the WPI (base year 1993- 94) “a” denotes constant quantity, i.e. the
intercept of the line on Y- axis. “b” denotes the co-efficient of X. “X” denotes the crude
oil price. (monthly Indian basket price). “et” is residual term of the model. The data
used for the variables were from April‟2000 to July‟2009.
For deriving the elasticity co-efficient, the double log regression model was
used. The above equation was converted into natural log – linear form. One attractive
feature of double log model or log – log model is that the slope co-efficient “b” measure
elasticity of Y with respect to X, that is percent change of Y for a given (small) percent
change in X. Thus, Y represents quantity of WPI increased and X its unit price; “b”
measures the elasticity (Gujarati, 1995). The double log regression model was estimated
using excel software package.
Model-2
In another attempt, to carry out the quantification of expected influence of inflation on

GDP growth, we have the econometric model which is depicted as follows-
YGDP = a1 + b1 XInflation+ et ----------(2)
Where, YGDP represents the GDP growth, XInflation represent the CPI Inflation rate,
“a1” represent the intercept and “et” denotes the residual term. The data used for the
variables are quarterly data for both Inflation rate and GDP growth with base year
(2004-05).
The equations (1) and (2) are converted into natural log-linear form or double
log regression model for deriving the elasticity co-efficient of the dependent variables.
Here the independent variable is crude oil price in equation (1) and WPI is the
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dependent variable and in equation (2) Inflation is the independent variable and GDP
growth is the dependent variable respectively.
Model-3
In a separate attempt, all the variables are taken systematically i.e. GDP growth,
Inflation rate and Rate of change of crude price, all variables are in percent, data are
collected on quarterly basis with base year 2004-05 for prediction of GDP growth by
linear regression to study the hypotheses 1 and 2 by linear model. This is a
Multivariable Linear Regression Model - or – Three Variable Model.
YGDP = β1 + β2Xinfla. + β3Xrate of change of crude oil price.
On a priori reasoning let us assume that the GDP growth is dependent on

inflation rate and rate of change in crude oil price. The linear regression model is
estimated using excel data analysis software package. The output residuals are
analyzed, if there is the existence of auto correlation, also DW statistics and Sign test
followed by Auto regression and stationery.
Model-4.
Granger (1969) proposed a time series data-based approach in order to determine

causality. In the Granger-sense x is a cause of y if it is useful in forecasting y. In this
framework “useful” means that x is able to increase the accuracy of prediction of y with
respect to a forecast, considering only past values of y.
The Granger causality Test: The Granger causality test assumes that the information
relevant to the prediction of the respective variables, GDP growth and inflation rate,
inflation rate and rate of change in crude oil price are contained solely in the time series
data on these variables. The test involves estimating the following pair of regressions.
 Yt (infla). = Σni=1αi X t-i (rate of change in crude oil price) + Σnj=1 βjYt-
j(infla) + u1t
 X t (rate of change in crude price). = Σni=1λiX t-i.(rate of change in crude oil
price) + Σnj=1 δjYt-j(infla) + u2t‟
Similarly,
 Yt (GDP). = Σni=1αi X t-i ( infla) + Σnj=1 βjYt-j(GDP) + u1t
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 X t (infla). = Σni=1λiX t-i.(infla) + Σnj=1 δjYt-j(GDP) + u2t‟
Where, disturbance terms u1t, u2t are uncorrelated.
Based on the estimated OLS coefficients for the two sets of equation different
hypotheses about the relationship between rate of change in crude oil price and inflation
also the relationship between GDP growth rate and inflation can be formulated.
Model-5.
The “Cobb-Douglas” production function is applied for estimating the output of

Indian industries. The real output of industries depends upon the capital and labor as
well as energy resources. The “Cobb-Douglas” production function may be written as
y= A ert ha kb Ec ------------ equation (1)
Where y = is output,
h = labor measured in man-days
k = Capital input or capital employed in the business,
E = flow of energy.
A = a scaling factor; t = year;
r = is the trend rate of growth of output due to technological change;
a,b,c = are the output elasticities of respective inputs.
Now, if enterprises maximize economic profits, they employ energy at a rate

where the value of additional product obtained from employing more energy equals its
price. The demand for energy from equation above can be written as
E = c.Y. (pe / pd)-1 ----------equation (2)
Where, pe is the price of energy and pd is the price of output of the business
enterprise. The (pe / pd) is the relative price of energy, the relative price of energy
measured by the ratio of wholesale price index of fuel, related products like power, light
and lubricants to the wholesale price index and expressed in percent with respect to
base year.
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On simplification of the equations (1) and (2) with energy demand, the model
reduced to ln(y/k) = α + β ln(h/k) + γ ln(pe/pd) +δ.t -------- equation(3) Where, α =
(1/1-c)ln A*, and A*=A.(c)c ; which is the intercept of the regression equation, β =
a/(1-c) ; γ = (-c/1-c); δ = (r/1-c) are the regression coefficients. The equation (3) is the
reduced form of productivity model that is applied for Indian industries in relation to
rise in energy price.
17
CHAPTER 4
Global Oil Scenario
Crude oil is not distributed uniformly around the globe. Some regions and
countries are well endowed, while others are not. Most of the proven reserves of
conventional Oil are to be found in the Middle East Countries, namely, Iran, Iraq,
Kuwait, Saudi Arabia and the United Arab Emirates (UAE). Similarly, conventional
gas is located primarily in Russia and other Former Soviet Union (FSU) countries, Iran,
Qatar and Saudi Arabia. Since these reserves are often not in the same regions as the
markets they serve, considerations of security and diversity of supply are among the
important factors to be placed in the balance in decisions over squeezing more crude
oil from deposits in other regions closer to home or over developing non-conventional
crude oil.
Table 4.0. Distribution of World proved Oil reserves
Oil: Proved
reserves at end 2011
Thousand Thousand
Share of total R/P ratio
million Tonnes Million Barrels
Total North
America 33.5 217.5 13.2% 41.7
Total South & 50.5 325.4 19.7% *
Central America
Total Europe &
Eurasia 19.0 141.1 8.5% 22.3
Total Middle
East 108.2 795.0 48.1% 78.7
Total Africa 17.6 132.4 8.0% 41.2
Total Asia
Pacific 5.5 41.3 2.5% 14.0
18
Total world 234.3 1652.6 100% 54.2

of which: OECD 35.7 234.7 14.2% 34.7
Non-OECD 198.6 1417.9 85.8% 59.7
OPEC 168.4 1196.3 72.4% 91.5
Non-OPEC £ 48.7 329.4 19.9% 26.3
European Union 0.9 6.7 0.4% 10.8
Former Soviet
Union 17.2 126.9 7.7% 25.8
Canadian oil
sands: Total 27.5 169.2
of which: Under
active
development 4.2 25.9
Venezuela:
Orinoco Belt 35.3 220.0
Source: BP Statistical Review of World Energy June-2012.
4.1. Classification of Crudes

Crude oil differs in two important respects, the quality of crude and the location
of the production. The exact composition of the mixture will determine the mix of the
products that can be obtained from crude oil by refining and the case at which it is
refined. Hence, the crude oil, which yields a large proportion of more valuable products
and which can be treated by a large number of the world‟s refineries, will command a
premium over those which produce a larger proportion of lower value products or which
can be processed by only a limited number of refineries. Similarly, on the aspects of
location of production, Oil produced close to major markets for refining will require
less transportation and therefore will be more attractive and command a premium over
oil produced further from the market and which has to incur lager transportation costs
to get to the market (World Bank, 2005). Historically analysts have focused on two
key qualities of crude oil, namely, the API gravity and sulphur content to explain inter
crude price differentials.
19
The petroleum industry generally classifies crude oil by the geographic location
it is produced in (e.g. West Texas Intermediate, Brent or Oman), its API gravity (an oil
industry measure of density), and its sulphur content. Crude oil may be considered light
if it has low density or heavy if it has high density; and it may be referred to as sweet if
it contains relatively little sulphur or sour if it contains substantial amounts of sulphur.
The geographic location is important because it affects transportation costs to

the refinery. Light crude oil is more desirable than heavy oil since it produces a higher
yield of petrol, while sweet oil commands a higher price than sour oil because it has
fewer environmental problems and requires less refining to meet sulphur standards
imposed on fuels in consuming countries. Each crude oil has unique molecular
characteristics which are understood by the use of crude oil assay analysis in petroleum
laboratories. The type of crude oil that are traded on the international market have
steadily increased over the past few years, partly as a response to the desire to diversify
sources of supply and partly because increasing global demand has encouraged
production in less well-known oil producing areas.
According to The International Crude Oil Market Handbook, 2004, published by the
Energy Intelligence Group, there are about 161 different internationally traded crude
oils. They vary in terms of characteristics, quality, and market penetration. Two crude
oils which are either traded themselves or whose prices are reflected in other types of
crude oil include West Texas Intermediate and Brent. Comparing these two crude oils
with EIA‟s Imported Refiner Acquisition Cost (IRAC), the OPEC Basket, and
NYMEX futures is important to understand the differences among the various types of
crude oil that are often referred to in the press and by analysts. Generally, differences
in the prices of these various crude oils are related to quality differences, but other
factors can also influence the price relationships between each other.
4.2. Structure of the Industry and Global Oil Production

The oil industry is commonly viewed by the public as a monolithic entity. The
global petroleum industry is made up of many different actors engaged in different
segments of the business. Crude oil exploration & production (henceforth referred to as
E&P), gathering (generally called upstream sector), refining or manufacturing of
intermediate and final products such as petrol, diesel and ATF, chemical feedstock,
20
lubricant, and waxes (generally called downstream sector), refined product distribution
and storage facilities such as pipelines and terminals, marketing and retail operations
such as petrol stations, among others, constitute the functional characteristics of the
global petroleum industry. The petroleum industry (Chazeau and Kahn, 1959) is what
it is very largely because of the peculiarities of its raw material. Petroleum is a fluid,
both as captured from the hidden recesses of the earth and as it passes through
processing into final uses. It is concealed in the earth and all advances in modern
scientific techniques have been incapable of eliminating the high element of gamble in
its quest. It is a raw material of almost infinite potentialities some of will be lost forever
if care is not taken, some can be secured simply while others can be tapped only with
costly special equipment. And finally, oil is an exhaustible resource, the total quantity
of which is not clearly known.
The global proven oil reserve was estimated to 1652.6 billion barrels by the end
of 2011 as per BP. Almost 48.1% of the proven oil reserves are in Middle East. Saudi
Arabia has the second largest share of the reserve with 16.1%, Whereas Venezuela
ranks first in terms share of reserve with 17.9% and S & Cent America’s proven reserve
of 19.7%.The oil industry is not a scientific pursuit but a commercial venture. It is
largely profit oriented and hence is carried out by individuals, companies or countries
for their own needs and for commerce. The vagaries of the industry are because of
several factors which are beyond the control of the industry, even though some
powerful cartels and syndicates can influence the trend of production or prices from
time to time. The pattern of world oil production is given in table:-5.2.
Table 4.2. Global Oil Production

Oil: Change 2011
Production * 2011 over share
Million tonnes 2008 2009 2010 2011 2010 of total
Total North
America 618.5 632.1 650.6 670.0 3.0% 16.8%
Total S. & Cent.
America 366.0 371.9 375.2 379.9 1.3% 9.5%
Total Europe &
Eurasia 850.8 856.8 854.2 838.8 -1.8% 21.0%
21
Total Middle
East 1257.6 1166.6 1190.9 1301.4 9.3% 32.6%
Total Africa 488.3 463.0 478.5 417.4 -12.8% 10.4%
Total Asia
Pacific 383.8 379.0 396.1 388.1 -2.0% 9.7%
World Total 3965.0 3869.3 3945.4 3995.6 1.3% 100%
of which: OECD 863.7 864.0 868.1 866.7 -0.2% 21.7%
Non-OECD 3101.3 3005.3 3077.3 3128.9 1.7% 78.3%
OPEC 1736.6 1613.6 1645.9 1695.9 3.0% 42.4%
Non-OPEC £ 1601.3 1611.1 1641.3 1640.1 -0.1% 41.0%
European Union
# 105.4 99.0 92.7 80.9 -12.7% 2.0%
Former
Soviet
Union 627.1 644.6 658.2 659.6 0.2% 16.5%
* Includes crude oil, shale oil, oil sands and NGLs (the liquid content of natural gas where
this is recovered separately).
Excludes liquid fuels from other sources such as biomass and coal derivatives.
^ Less than 0.05.
£ Excludes Former Soviet Union.

# Excludes Estonia, Latvia and Lithuania prior to 1985 and Slovenia prior to 1991.
4.3. Global Oil Consumption

World crude oil consumption in the energy mix is the basic premises on which
the demand estimates are made. The crude oil consumptions are driven by consumption
of petroleum products; in turn crude oil consumption dictates the demand of crude oil
in the mix. The crude oil consumption pattern is given in table-5.3 below.
22
Table 5.3 Global Oil Consumption

Oil: Consumption * Change 2011
2011
over share
Million tonnes 2008 2009 2010 2011 2010 of total
Total North America 1069.9 1018.7 1041.1 1026.4 -1.4% 25.3%
Total S. & Cent.
America 268.5 266.0 281.0 289.1 2.9% 7.1%
Total Europe &
Eurasia 955.5 908.5 903.1 898.2 -0.6% 22.1%
Total Middle East 341.6 350.3 364.3 371.0 1.8% 9.1%
Total Africa 150.1 154.2 160.6 158.3 -1.4% 3.9%
Total Asia Pacific 1201.6 1211.2 1281.7 1316.1 2.7% 32.4%
Total World 3987.3 3908.9 4031.9 4059.1 0.7% 100.0%
of which: OECD 2208.9 2097.8 2118.0 2092.0 -1.2% 51.5%

Non-OECD 1778.3 1811.1 1913.9 1967.0 2.8% 48.5%
European Union # 705.6 667.7 662.8 645.9 -2.6% 15.9%
Former Soviet Union 187.2 178.0 180.4 190.6 5.7% 4.7%
* Inland demand plus international aviation and marine bunkers and refinery fuel and
loss. Consumption of fuel ethanol and biodiesel is also included.
^ Less than 0.05.
# Excludes Estonia, Latvia and Lithuania prior to 1985 and Slovenia prior to 1991.
Note: Differences between these world consumption figures, and world production
statistics are accounted for by stock changes, consumption of nonpetroleum additives and
substitute fuels, and unavoidable disparities in the definition, measurement or conversion
of oil supply and demand data.
23
If the production continues at today’s rate, many of the present top ranking
producers such as U.S, Russia, Mexico, Norway, China and Brazil will have their oil
field largely depleted, and so will have much smaller share in the oil market in less than
20 years. At that point of time, world will have to depend mostly on Middle East for
oil. The non-Middle East Countries‟ overall reserves-to-production ratios are much
lower than the Middle East Countries (about 22 to 40 for non- Middle East and about
90 for the Middle East producers). Apart from the above conventional oil reserves, an
estimated 800 to 900 billion barrels of unconventional oil reserves comprising of oil
sands (or tar sands) and heavy oil are located in Canada and Venezuela. The R/P ratio
for unconventional oils is very large expected to be 300 by 2020.
4.4. Indian Scenario.

1. Pre-Independence period (1866-1947):
The exploration of hydrocarbon is commenced in 1866 when Mr.Goodenough
of McKoillop Stewart Co. drilled a well near Jaypore in upper Assam and struck oil.
Mr.Goodenough, however, failed to establish satisfactory production. By 1882 the
Assam Railway and Trading company (ARTC), a company registered in London in
1881, with an objective to explore the rich natural resources of Upper Assam, acquired
rights for exploration over about 30 sq. miles in the same area. Sub-surface oil
exploration activities started in the dense jungles of Assam in North-East India. The
first commercial discovery of crude oil in the country was, however, made in 1889 at
Digboi. In 1893, rights were granted to the Assam Oil Syndicate which erected a small
refinery at Margharita to refine the oil produced at Margharita. A new company known
as Assam Oil Company (AOC) was formed in 1899 with a capital of £ 310,000
headquartered at Digboi to take over the petroleum interests, including the Makum and
Digboi concessions and the rights from Assam Oil Syndicate. A 500 BPD refinery was
set up in Digboi in 1901, supplanting the earlier refinery at Margharita.
In 1921, UK based Burmah Oil Company (BOC) which had a successful oil
exploration record in Burma, bought all the shares from ARTC and was appointed
commercial and technical managers of AOC. By 1931, crude oil production has gone
up to about 250,000 tonnes per annum and exploration activities were spread all over
the Assam-Arakan region. Meanwhile another field was discovered at Badarpur in the
24
Surma Valley and because the discovering party lacked the capabilities to exploit the
find, BOC provided technical know-how, financial backing and managerial support.
2. Post-Independence Period (1947-1960):

After independence, the Government of India (GoI) realized the importance of
oil and gas for rapid industrial development and its strategic role in defense.
Consequently, while framing the industrial Policy Statement of 1948, the development
of petroleum industry in the country was given top priority.
While BOC and AOC continued development of Digboi oil field and intensified
exploration activities in the North-East region, the Indo-Stanvac Petroleum Project (a
joint venture between GoI and Standard Vacuum Oil Company of USA) was engaged
in exploration work in West Bengal. In the year 1953, the first oil discovery of
independent India was made at Nahorkatiya near Digboi and then in Moran in 1956.
In 1955, GoI decided to develop the oil and natural gas resources in the various regions
of the country as a part of development of the Public Sector. With this objective, and
Oil and Natural Gas Directorate (ONGD) was set up towards the end of 1955, as a
subordinate office under the then Ministry of Natural Resources and Scientific
Research. The department was constituted with a nucleus of geoscientists from the
Geological Survey of India (GSI).
In April 1956, the GoI adopted the Industrial Policy Resolution, which placed mineral
oil industry among the schedule „A‟ industries, the future development of which as to
be the sole and exclusive responsibility of state.
Soon, after the formation of ONGD, it became apparent that it would not be possible
for the Directorate with its limited financial and administrative powers as subordinate
office of the Government to function efficiently.
3. Mixed Economy Period (1961-1991):

On July 27th 1961, the Government of India and BOC transformed OIL into a
Joint Venture Company (JVC) with equal partnership. ONGC‟s Geo-Scientific surveys
and exploratory drilling activities were also spread out to UP (1962), Bihar (1963),
Tamil Nadu (1964), Rajasthan (1964), J&K (1970), Kutch (1972), and Andhra Pradesh
(1978). In spite of limited success in these areas, ONGC pursued its exploratory efforts
and was successful in identifying hydrocarbons in Cauvery basin and Krishna Godavari
25
basins in the mid 1980‟s. Offshore exploration was initiated in 1962 through
experimental seismic surveys in the Gulf of Cambay. Detailed seismic surveys carried
out in the western offshore in 1972-73 resulted in the identification of a large structure
in Bombay Offshore which was taken up for drilling in 1974 leading to India’s biggest
commercial discovery, thereby establishing a new hydrocarbon province. Encouraged
by the success at Bombay Offshore, exploratory efforts were expended systematically
in the entire Western Offshore including Kerala Konkan basin and Eastern Offshore
areas leading again to large discoveries in the Western Offshore (Bassein and Neelam)
and substantial accumulations in the Eastern Offshore (Ravva, PY-3 etc.). ONGC went
offshore in the early 1970‟s and discovered a giant oil field in the form of Bombay
High, now known as Mumbai High. This discovery, along with subsequent discoveries
of huge oil and gas fields in Western offshore changed the oil scenario of the country.
Subsequently over 5 billion tonnes of hydrocarbons were discovered. The most
important contribution of ONGC, however, is its self-reliance and development of core
competence in E&P activates at a globally competitive level.
ONGC went offshore in the early 1970‟s and discovered a giant oil field in the form of
Bombay High, now known as Mumbai High. This discovery, along with subsequent
discoveries of huge oil and gas fields in Western offshore changed the oil scenario of
the country. Subsequently over 5 billion tonnes of hydrocarbons were discovered. The
most important contribution of ONGC, however, is its self-reliance and development
of core competence in E&P activates at a globally competitive level. On October, 14th,
1961, OIL became a wholly-owned GoI enterprise by taking over BOC‟s 50 per cent
equity and the management of Digbol oilfields changed hands from the erstwhile AOC
to OIL.
For the time PEL‟s outside the North-East, were granted to OIL in Offshore Orissa
(Mahanadi) in 1978, in Mahanadi Onshore (1981), North-East Coast Offshore (1983),
Rajasthan (1983), Saurastra Offshore (1989) and Ganga Valley areas in UP in 1990.
4. Economic Liberalization 1991:

The liberalized economic policy, adopted by the Government of India in July,
1991 sought to deregulate and de-license the core sectors (including petroleum sector)
with partial disinvestments of government equity in Public Sector Undertaking and
26
other measures. Following this, ONGC was re-organized in February 1994 as a limited
company under the companies Act.
5. Post Liberalization:
Several committees were set up to examine various proposals for restructuring
and devising strategies to meet the challenge of the new economic environment.
Among the most prominent report was the Sundarajan Committee Report in February
1995 which favoured de-regulation of the petroleum industry at one stroke. However,
the strategic Planning group on
Restructuring of the Indian Oil Industry, the „R‟ Group, headed by the then Petroleum
Secretary. Dr. Vijay Kelkar, felt the Switchover should be in a phased manner.
Commercial hydrocarbon discoveries were reported by OIL during 1990-
91 in Assam and Rajasthan. During 1993 -1994 ONGC‟s production from western
offshore reached a low of 15.37 MMT, prompting ONGC to enter into Joint Ventures
for developing Ravva, Mid & South Tapti, Mukta and Panna fields. The JV initiative
was fulfilled in as much as it increased the production from these declining fields by 5
MMT in 1994-95; during the same period 5 important discoveries were made in the
Bombay, Krishna – Godavari and Cauvery Basins. A committee was constituted in
1992 under the chairmanship of P.K. Kaul former cabinet Secretary, to examine the
need for restructuring of ONGC. This Committee recommended setting up of a body,
with the name and style of the Director General of Hydrocarbons (DGH), for
discharging the regulatory functions of leasing and licensing, safety and environment
as also development, conservation and reservoir management of Hydrocarbon
resources. Accordingly, DGH was set up by a Government Resolution in April, 1993
through which certain advisory regulatory roles were entrusted but no development role
was assigned.
4.4.1. Crude Oil and Natural Gas Production in India.

The trend in production of crude oil and natural gas during the period 2003-04 to 2010-
11 is in Table-5.4.1 and Figure-5.4.1. The crude oil production has remained in the
range of 33 to 34 MMT during the period 2002-03 to 2009-10. However, during 2010-
11 the production of crude oil increased from33.69 MMT during 2009-10 to 37.712
MMT due to production from Rajasthan oil fields. Natural gas production increased
substantially from 31.389 BCM in 2002-03 to
27
52.222 BCM in 2010-11, with some major discoveries by Pvt. /JVC‟s in Krishna
Godawari deep water; there was an increase by 11.94% over the year 2009-10 in
production of crude oil in 2010-11.
The Government of India launched the ninth bid round of New Exploration
Licensing Policy (NELP-IX) and fourth round of Coal Bed Methane Policy (CBM-
IV) during October 2010 to enhance the country’s energy security. In addition, overseas
oil and gas production in 2011-12 is likely to be about 7 MMT and 2 BCM per annum
respectively.
Table 4.4.1. Crude Oil and Natural Gas Production in India
Year Crude Oil % Natural %

Production Growth Production Growth
(MMT) (BCM)
2002-03 33.044 - 31.389 -
2003-04 33.373 1.0 31.962 1.83
2004-05 33.981 1.82 31.763 -0.62
2005-06 32.190 -5.27 32.202 1.38
2006-07 33.988 5.59 21.747 -1.41
2007-08 34.118 0.38 32.417 2.11
2008-09 33.508 -1.79 32.845 1.32
2009-10 33.691 0.55 47.496 44.6
2010-11 37.712 11.94 52.222 9.95
Source: Indian Petroleum and Natural Gas Statistics, 2010-11, Govt. of India Ministry
of Petroleum and Natural Gas, Economic Division, New Delhi.
28
Figure -4.4.1. Percentage Growth in Crude Oil & Natural Gas Production
50 44.6
40
30
20
9.95
10
1.83 1.38 2.11 1.32
-0.62 -1.41
0
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
-10
% Growth of Crude Oil Production - % Growth of Natural Gas Production
Source: Indian Petroleum and Natural Gas Statistics, 2010-11, Govt. of India Ministry
of Petroleum and Natural Gas, Economic Division, New Delhi.
29
CHAPTER 5
SWOC Analysis of Stock Market

Strength, weakness, opportunity, and threats (SWOT) of Indian Stock Market is given
as follows
5.1 Strength:
 The first and for most thing of strength of Bangladesh stock market is its ability
to Provide high return.
 Regulatory body of Bangladesh stock market that protects the interest of the
investors.
 Large number of securities which provides medium for investment.
 Large number of Brokers who plays a role of facilitator for investment.
5.2 Weakness:
 The weak point of Indian stock market is its volatility (i.e., high risk).
 It is a kind of gambling where no guarantee of return and some time it depends
on luck also
5.3 Opportunity:
 Stock market provides an opportunity to money lender and money seeker to

invest and use money for their plan.
 It provides an opportunity to the investor to be the owner of the company and
contribute in the business decision of the company.
 Stock market is a kind of indicator of the economic growth of the country where
it provides an opportunity to gain according to the inflation of the country or
more than that.
5.4 Challenges:
 There are many competitors of stock market such as post-office savings, public
provident fund, company fixed deposits, fixed deposits with bank etc. which
provides fixed and assured returns.
 Changing of economic condition.
30
 Capital market instrument is highly risky then money market.

 Changing of government rules and regulations. Speed of growth in Capital
Market not complemented by the controlling
31
CHAPTER 6
Result and Analysis
6.1. Crude
The critical role played by crude oil, events in the oil market has a major impact
on overall economy. The graph below in the figure shows the variation of the crude oil
with respect to the varying years with the variation in its price. This plot gives the valid
data and its Market value for the years varying from 1988 to 2018 in the market.
CRUDE
140
120
100
80
60
40
20
0
88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
Figure: Variation of Crude value with years

80
Series: CRUDE
70 Sample 1988M01 2019M07
Observations 379
60
Mean 45.72926
50 Median 33.51000
Maximum 133.8800
40 Minimum 11.35000
Std. Dev. 29.38075
30
Skewness 0.801591
Kurtosis 2.488521
20
Jarque-Bera 44.71893
10
Probability 0.000000
0
10 20 30 40 50 60 70 80 90 100 110 120 130
Figure: Variation of Crude value with years

The Figure above shows the Bar chart for the CRUDE with an observed sample
of 1988M01 219M0 with an observation of 379 sample which results with standard
deviation of 29.4 and probability being Zero.
32
Table: Null Hypothesis for CRUDE
Null Hypothesis: CRUDE has a unit root

Exogenous: Constant, Linear Trend
Lag Length: 1 (Automatic - based on SIC, maxlag=16)
t-Statistic Prob.*
Augmented Dickey-Fuller test statistic -3.141928 0.0982

Test critical values: 1% level -3.982588
5% level -3.421788
10% level -3.133701
*MacKinnon (1996) one-sided p-values.
Augmented Dickey-Fuller Test Equation

Dependent Variable: D(CRUDE)
Method: Least Squares
Date: 09/21/19 Time: 16:08
Sample (adjusted): 1988M03 2019M07
Included observations: 377 after adjustments
Variable Coefficient Std. Error t-Statistic Prob.
CRUDE(-1) -0.033326 0.010607 -3.141928 0.0018

D(CRUDE(-1)) 0.393029 0.047768 8.227861 0.0000
C 0.413210 0.429097 0.962977 0.3362
@TREND("1988M01") 0.006214 0.002857 2.174944 0.0303
Above table shows the Null Hypothesis chart for the crude with a unit root and
having a constant exogenous, The Lag length being 1. The validate results shows that
the maximum probability being 0.33 and standard Error of 0.42.
Table: Null Hypothesis for D(CRUDE)

Null Hypothesis: D(CRUDE) has a unit root
t-Statistic Prob.*

5% level -3.421788
10% level -3.133701
33

Dependent Variable: D(CRUDE,2)
Date: 09/21/19 Time: 16:08
D(CRUDE(-1)) -0.625313 0.047969 -13.03578 0.0000

C 0.151594 0.425904 0.355934 0.7221
@TREND("1988M01") -0.000428 0.001945 -0.220122 0.8259
Above table shows the Null Hypothesis chart for the D(crude) with a unit root
and having a constant exogenous, The Lag length being 0. The validate results shows
that the maximum probability being 0.82 and standard Error of 0.42.
6.2. SENSEX
The graph below in the figure shows the variation of the SENEX with respect
to the varying years with the variation in its price. This plot gives the valid data and its
Market value for the years varying from 1988 to 2018 in the market.
SENSEX
50,000
40,000
30,000
20,000
10,000
0
88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
Figure : Variation of SENSEX value with years
34
90
Series: SENSEX
80 Sample 1988M01 2019M07
Observations 379
70
60 Mean 11290.11
Median 5005.820
50 Maximum 39714.20
Minimum 398.3500
40
Std. Dev. 10646.97
30 Skewness 0.955092
Kurtosis 2.737480
20
Jarque-Bera 58.70904
10
0
0 4000 8000 12000 16000 20000 24000 28000 32000 36000 40000
Figure : Variation of SENSEX value with years

The Figure above shows the Bar chart for the SENSEX with an observed sample
of 1988M01 219M0 with an observation of 379 sample which results with standard
deviation of 10646.97 and probability being Zero. With mean and median as show in
the bar chart above.
Table: Null Hypothesis for SENSEX
Null Hypothesis: SENSEX has a unit root

t-Statistic Prob.*

5% level -3.421757
10% level -3.133682

Dependent Variable: D(SENSEX)
Date: 09/21/19 Time: 16:09
SENSEX(-1) -0.012133 0.009212 -1.317101 0.1886

C -91.25927 94.66262 -0.964048 0.3356
@TREND("1988M01") 1.717066 0.891552 1.925929 0.0549
Above table shows the Null Hypothesis chart for the SENSEX with a unit root and
the maximum probability being 0.33 and standard Error of 94.66
35
Table: Null Hypothesis for D(SENSEX)

Null Hypothesis: D(SENSEX) has a unit root
t-Statistic Prob.*

5% level -3.421788
10% level -3.133701

Dependent Variable: D(SENSEX,2)
Date: 09/21/19 Time: 16:10
D(SENSEX(-1)) -1.009819 0.052240 -19.33055 0.0000

C -24.63010 80.65083 -0.305392 0.7602
@TREND("1988M01") 0.652598 0.370234 1.762664 0.0788
Above table shows the Null Hypothesis chart for the crude with a unit root and
the maximum probability being 0.76 and standard Error of 80.65.
36
Figure : Variation of CRUDE and SENSEX value with years
The graph above in the figure shows the variation of the Crude and SENEX.
This plot gives the valid data and its Market value for the years varying from 1990 to
2015 in the market.
Table: VAR lag Order Selection Criteria for SENSEX CRUDE
VAR Lag Order Selection Criteria

Endogenous variables: SENSEX CRUDE
Exogenous variables: C
Date: 09/22/19 Time: 19:57
37
Sample: 1988M01 2019M07

Included observations: 371
Lag LogL LR FPE AIC SC HQ
0 -5647.533 NA 5.78e+10 30.45570 30.47681 30.46409

1 -4073.885 3121.846 12215732 21.99399 22.05732 22.01914
2 -4038.801 69.22185 10331111 21.82642 21.93198* 21.86835*
3 -4034.695 8.057096 10325266 21.82585 21.97363 21.88454
4 -4031.432 6.368694 10366447 21.82982 22.01982 21.90528
5 -4024.550 13.35523 10206814 21.81429 22.04651 21.90652
6 -4023.318 2.378415 10360473 21.82921 22.10366 21.93821
7 -4016.175 13.70790* 10186738 21.81226 22.12894 21.93804
8 -4011.297 9.308535 10139056* 21.80753* 22.16643 21.95007
* indicates lag order selected by the criterion

LR: sequential modified LR test statistic (each test at 5% level)
FPE: Final prediction error
AIC: Akaike information criterion
SC: Schwarz information criterion
HQ: Hannan-Quinn information criterion
The above table specifies the lag details for the lag varying from 0 to 8 for
SENSEX CRUDE with Exogenous variable C for the sample 1988M01 2019M07.
The different results for Akaike and Schwarz information criteria are listed in the
table.
Table: Linear deterministic trend SENSEX CRUDE
Date: 09/22/19 Time: 19:58
Trend assumption: Linear deterministic trend
Series: SENSEX CRUDE
Lags interval (in first differences): 1 to 8
Unrestricted Cointegration Rank Test (Trace)
Hypothesized Trace 0.05

No. of CE(s) Eigenvalue Statistic Critical Value Prob.**
None 0.018724 7.068706 15.49471 0.5697

At most 1 0.000203 0.075278 3.841466 0.7838
Trace test indicates no cointegration at the 0.05 level

* denotes rejection of the hypothesis at the 0.05 level
**MacKinnon-Haug-Michelis (1999) p-values
Unrestricted Cointegration Rank Test (Maximum Eigenvalue)
Hypothesized Max-Eigen 0.05

No. of CE(s) Eigenvalue Statistic Critical Value Prob.**
None 0.018724 6.993428 14.26460 0.4899

At most 1 0.000203 0.075278 3.841466 0.7838
Max-eigenvalue test indicates no cointegration at the 0.05 level

* denotes rejection of the hypothesis at the 0.05 level
38
The above table specifies the Linear deterministic trend details for SENSEX
CRUDE with and observation of 370 after adjustments, for the sample 1988M01
2019M07. The different results for Eigenvalue and Trace Statistic are listed in the
table.
Table: Vector Autoregression Estimates SENSEX CRUDE
The below table shows the Vector Autoregression Estimatesfor the SENSEX
CRUDE for sample 1988M01 2019M07, Dated on 09/22/19 are listed below.
Vector Autoregression Estimates

Date: 09/22/19 Time: 20:05
Standard errors in ( ) & t-statistics in [ ]
SENSEX CRUDE
SENSEX(-1) 0.975958 0.000754

(0.05344) (0.00028)
[ 18.2610] [ 2.68775]
SENSEX(-2) -0.090087 -0.001186

(0.07446) (0.00039)
[-1.20992] [-3.03229]
SENSEX(-3) 0.188739 0.000572

(0.07572) (0.00040)
[ 2.49271] [ 1.43934]
SENSEX(-4) -0.037229 0.000135

(0.07630) (0.00040)
[-0.48794] [ 0.33626]
SENSEX(-5) -0.002287 -8.99E-05

(0.07542) (0.00040)
[-0.03032] [-0.22700]
SENSEX(-6) -0.034464 0.000654

(0.07552) (0.00040)
[-0.45637] [ 1.64942]
SENSEX(-7) 0.051089 -0.000416

(0.07575) (0.00040)
[ 0.67443] [-1.04618]
SENSEX(-8) -0.050195 -0.000427

(0.05499) (0.00029)
[-0.91277] [-1.47925]
CRUDE(-1) 9.349931 1.313358

(10.1707) (0.05341)
[ 0.91930] [ 24.5887]
CRUDE(-2) -7.106934 -0.249948

(16.8202) (0.08833)
[-0.42252] [-2.82957]
39
CRUDE(-3) 20.78741 -0.160049

(16.9012) (0.08876)
[ 1.22994] [-1.80317]
CRUDE(-4) -56.51785 0.059553

(17.0574) (0.08958)
[-3.31340] [ 0.66480]
CRUDE(-5) 26.80106 -0.007926

(17.3188) (0.09095)
[ 1.54751] [-0.08714]
CRUDE(-6) 3.665411 -0.107640

(17.2578) (0.09063)
[ 0.21239] [-1.18766]
CRUDE(-7) -23.10741 0.113395

(16.8911) (0.08871)
[-1.36803] [ 1.27831]
CRUDE(-8) 27.08695 0.023972

(10.2406) (0.05378)
[ 2.64505] [ 0.44574]
C 36.81389 0.626464
(75.3330) (0.39562)
[ 0.48868] [ 1.58348]
R-squared 0.995084 0.982213

Adj. R-squared 0.994862 0.981409
Sum sq. resids 2.06E+08 5680.630
S.E. equation 762.7780 4.005868
F-statistic 4478.618 1221.763
Log likelihood -2980.040 -1032.584
Akaike AIC 16.15655 5.658137
Schwarz SC 16.33600 5.837585
Mean dependent 11522.66 46.35695
S.D. dependent 10641.42 29.37963
Determinant resid covariance (dof adj.) 9270046.

Determinant resid covariance 8439964.
Log likelihood -4011.297
Akaike information criterion 21.80753
Schwarz criterion 22.16643
SENSEX = C(1)*SENSEX(-1) + C(2)*SENSEX(-2) + C(3)*SENSEX(-3) + C(4)*SENSEX(-4) +
C(5)*SENSEX(-5) + C(6)*SENSEX(-6) + C(7)*SENSEX(-7) + C(8)*SENSEX(-8) + C(9)*CRUDE(-1) +
C(10)*CRUDE(-2) + C(11)*CRUDE(-3) + C(12)*CRUDE(-4) + C(13)*CRUDE(-5) + C(14)*CRUDE(-6) +
C(15)*CRUDE(-7) + C(16)*CRUDE(-8) + C(17)
CRUDE = C(18)*SENSEX(-1) + C(19)*SENSEX(-2) + C(20)*SENSEX(-3) + C(21)*SENSEX(-4) +

C(22)*SENSEX(-5) + C(23)*SENSEX(-6) + C(24)*SENSEX(-7) + C(25)*SENSEX(-8) + C(26)*CRUDE(-
1) + C(27)*CRUDE(-2) + C(28)*CRUDE(-3) + C(29)*CRUDE(-4) + C(30)*CRUDE(-5) + C(31)*CRUDE(-
6) + C(32)*CRUDE(-7) + C(33)*CRUDE(-8) + C(34)
Table: Least Square observation for SENSEX

The below table shows the Least Squares test for SENSEX for an adjusted
sample 1988M01 2019M07, Dated on 09/22/19 are listed below.
40
Dependent Variable: SENSEX

Date: 09/22/19 Time: 20:06
SENSEX = C(1)*SENSEX(-1) + C(2)*SENSEX(-2) + C(3)*SENSEX(-3) + C(4)
*SENSEX(-4) + C(5)*SENSEX(-5) + C(6)*SENSEX(-6) + C(7)*SENSEX(
-7) + C(8)*SENSEX(-8) + C(9)*CRUDE(-1) + C(10)*CRUDE(-2) + C(11)
*CRUDE(-3) + C(12)*CRUDE(-4) + C(13)*CRUDE(-5) + C(14)
*CRUDE(-6) + C(15)*CRUDE(-7) + C(16)*CRUDE(-8) + C(17)
Coefficient Std. Error t-Statistic Prob.
C(1) 0.975958 0.053445 18.26104 0.0000

C(2) -0.090087 0.074456 -1.209924 0.2271
C(3) 0.188739 0.075717 2.492708 0.0131
C(4) -0.037229 0.076298 -0.487945 0.6259
C(5) -0.002287 0.075424 -0.030321 0.9758
C(6) -0.034464 0.075516 -0.456373 0.6484
C(7) 0.051089 0.075751 0.674425 0.5005
C(8) -0.050195 0.054992 -0.912766 0.3620
C(9) 9.349931 10.17068 0.919303 0.3586
C(10) -7.106934 16.82020 -0.422524 0.6729
C(11) 20.78741 16.90121 1.229936 0.2195
C(12) -56.51785 17.05735 -3.313401 0.0010
C(13) 26.80106 17.31880 1.547512 0.1226
C(14) 3.665411 17.25776 0.212392 0.8319
C(15) -23.10741 16.89105 -1.368027 0.1722
C(16) 27.08695 10.24060 2.645054 0.0085
C(17) 36.81389 75.33299 0.488682 0.6254
R-squared 0.995084 Mean dependent var 11522.66

Adjusted R-squared 0.994862 S.D. dependent var 10641.42
S.E. of regression 762.7780 Akaike info criterion 16.15655
Sum squared resid 2.06E+08 Schwarz criterion 16.33600
Log likelihood -2980.040 Hannan-Quinn criter. 16.22782
F-statistic 4478.618 Durbin-Watson stat 1.968817
Prob(F-statistic) 0.000000
C(9)=C(10)=C(11)=C(12)=C(13)=C(14)=C(15)=C(16)=0
6.3. WALD TEST

The Wald test (also called the Wald Chi-Squared Test) is a way to find out
if explanatory variables in a model are significant. “Significant” means that they add
something to the model; variables that add nothing can be deleted without affecting the
model in any meaningful way. The test can be used for a multitude of different models
including those with binary variables or continuous variables.
The null hypothesis for the test is: some parameter = some value. For example,
you might be studying if weight is affected by eating junk food twice a week. “Weight”
would be your parameter. The value could be zero (indicating that you don’t think
41
weight is affected by eating junk food). If the null hypothesis is rejected, it suggests
that the variables in question can be removed without much harm to the model fit.
The below table and graph show the results of the WALD TEST analysis made
for the sample 1988M01 2019M07.
Table: Wald Test
Wald Test:
Equation: Untitled
Test Statistic Value Df Probability
F-statistic 3.696747 (8, 354) 0.0004

Chi-square 29.57398 8 0.0003
Null Hypothesis: C(9)=C(10)=C(11)=C(12)=C(13)=C(14)=C(

15)=C(16)=0
Null Hypothesis Summary:
Normalized Restriction (= 0) Value Std. Err.
C(9) 9.349931 10.17068

C(10) -7.106934 16.82020
C(11) 20.78741 16.90121
C(12) -56.51785 17.05735
C(13) 26.80106 17.31880
C(14) 3.665411 17.25776
C(15) -23.10741 16.89105
C(16) 27.08695 10.24060
Restrictions are linear in coefficients.
42
50,000
40,000
30,000
20,000
3,000
10,000
2,000
0
1,000
-1,000
-2,000
-3,000
88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
Residual Actual Fitted
Figure: Wald Test

Durbin-Watson Test is restricted to detecting first-order autoregression,
the Breusch-Godfrey (BG) Test can detect autocorrelation up to any predesignated
order p. It also supports a broader class of regressors which are shown in the table
below.
Table: Breusch-Godfrey Serial Correlation LM Test
Breusch-Godfrey Serial Correlation LM Test:
F-statistic 2.010790 Prob. F(2,352) 0.1354

Obs*R-squared 4.190776 Prob. Chi-Square(2) 0.1230
6.4. ARCH EFFECT

The ARCH effect is concerned with a relationship within the heteroskedasticity,
often termed serial correlation of the heteroskedasticity. It often becomes apparent
when there is bunching in the variance or volatility of a particular variable, producing
a pattern which is determined by some factor. Given that the volatility of financial assets
is used to represent their risk, it can be argued that the ARCH effect is measuring the
risk of an asset. The tables and the graphs below show the ARCH effect for the samples.
43
Table: Heteroskedasticity Test: ARCH EFFECT

Heteroskedasticity Test: ARCH

44
Sensex Re
.20
.15
.10
.05
.00
-.05
-.10
-.15
1000 2000 3000 4000 5000 6000
CRUDERE
.2
.1
.0
-.1
-.2
-.3
1000 2000 3000 4000 5000 6000
Figure: Daily Returns of S&P BSE Sectoral Indices Heteroskedasticity Test,

ARCH EFFECT
6.5. ARCH effect in Sensex
Auto Regressive Conditional Heteroscedasticity –Lagrange Multiplier test is
employed to exam the presence of heteroscedasticity in residual series of the daily
returns of the six indices of BSE respectively. The presence of heteroscedasticity is a
pre-requisite for using the GARCH model to capture the volatility behaviour present in
the selected indices’ daily returns. The tables and the graphs below show the ARCH
effect on SENSEX for the samples.
45
Table: Heteroskedasticity Test: ARCH EFFECT

Test Equation:
The below table give the details of the Sensex for no trend and intercept
Table: Sensex for no trend and intercept
Null Hypothesis: SENSEX_RE has a unit root

t-Statistic Prob.*

5% level -3.410536
10% level -3.127038

Dependent Variable: D(SENSEX_RE)
Date: 10/04/19 Time: 09:02
Sample (adjusted): 3 6144
SENSEX_RE(-1) -0.944808 0.012746 -74.12862 0.0000

C 0.000330 0.000372 0.887960 0.3746
@TREND("1") 1.90E-08 1.05E-07 0.180725 0.8566
6.6. Normal Gaussian Distribution.

The Gaussian distribution shown is normalized so that the sum over all values
of x gives a probability of 1. The nature of the gaussian gives a probability of 0.683 of
being within one standard deviation of the mean. The mean value is a=np where n is
the number of events and p the probability of any integer value of x (this expression
carries over from the binomial distribution). The standard deviation expression used is
also that of the binomial distribution. The Gaussian distribution is also commonly called
46
the "normal distribution" and is often described as a "bell-shaped curve". The below
table and graph shows the statistics for the samples.
Table: Normal Gaussian Distribution.
Dependent Variable: SENSEX_RE

Method: ML - ARCH (Marquardt) - Normal distribution
Date: 10/04/19 Time: 09:07
Convergence achieved after 14 iterations
Presample variance: backcast (parameter = 0.7)
GARCH = C(3) + C(4)*RESID(-1)^2 + C(5)*GARCH(-1)
Variable Coefficient Std. Error z-Statistic Prob.
C 0.000738 0.000130 5.692890 0.0000

CRUDERE 0.042980 0.006098 7.047779 0.0000
Variance Equation
C 1.67E-06 2.20E-07 7.594081 0.0000

RESID(-1)^2 0.088863 0.004210 21.10824 0.0000
GARCH(-1) 0.907035 0.003988 227.4632 0.0000

S.E. of regression 0.014546 Akaike info criterion -5.949422
Sum squared resid 1.299346 Schwarz criterion -5.943949
Log likelihood 18278.65 Hannan-Quinn criter. -5.947524
Durbin-Watson stat 1.890011
47
Figure: Normal Gaussian Distribution.

1,600
Series: Standardized Residuals
1,400 Sample 2 6144
Observations 6143
1,200
Mean -0.029870
1,000
Median -0.020232
800 Maximum 6.905198
Minimum -6.188834
600 Std. Dev. 0.999806
Skewness -0.187062
400 Kurtosis 5.072963
200 Jarque-Bera 1135.724

0
-6 -4 -2 0 2 4 6

6.7. Student t distribution

The t distribution (Student’s t-distribution) is a probability distribution that is
used to estimate population parameters when the sample size is small and/or when the
population variance is unknown. According to the central limit theorem, the sampling
distribution of a statistic (like a sample mean) will follow a normal distribution, as long
as the sample size is sufficiently large. Therefore, when we know the standard deviation
of the population, we can compute a z-score, and use the normal distribution to evaluate
probabilities with the sample mean. The below shows the table and plots for the Student
t distribution
Table: Student’s t-distribution.

Method: ML - ARCH (Marquardt) - Student's t distribution
Date: 10/04/19 Time: 09:10
C 0.000784 0.000128 6.143561 0.0000

CRUDERE 0.039686 0.006153 6.449972 0.0000
48
Variance Equation
C 1.82E-06 3.76E-07 4.830841 0.0000

RESID(-1)^2 0.085768 0.007547 11.36392 0.0000
GARCH(-1) 0.908721 0.007249 125.3516 0.0000
T-DIST. DOF 6.248919 0.481617 12.97488 0.0000

49
1,600
1,400 Sample 2 6144
Observations 6143
1,200
Mean -0.033635
1,000
Median -0.025672
800 Maximum 6.945936
Minimum -6.186363
600 Std. Dev. 0.997869
Skewness -0.187099
400 Kurtosis 5.090829

0
-6 -4 -2 0 2 4 6
Figure: Student’s t-distribution.

6.8. GED with fixed parameter

The GARCH (1,) was used to capture the main characteristics of time series
data, such as stationary by using fat tails and volatility clustering. In addition, the
ARCH effects which contradict the random walk concept. For the study purpose all the
three GARCH (1,) models viz., Normal GAUSSIAN, Student t Distribution and GED
with fix parameters have been run. The below are the table and the plots for the samples.
Table: GED with fixed parameter

Method: ML - ARCH (Marquardt) - Generalized error distribution
(GED)
Date: 10/04/19 Time: 09:12
GED parameter fixed at 1.5
C 0.000721 0.000128 5.640826 0.0000

CRUDERE 0.036444 0.006181 5.896407 0.0000
Variance Equation
50
C 1.68E-06 3.10E-07 5.417815 0.0000

RESID(-1)^2 0.084516 0.006006 14.07219 0.0000
GARCH(-1) 0.908265 0.005922 153.3751 0.0000

51
1,600
1,400 Sample 2 6144
Observations 6143
1,200
Mean -0.028652
1,000
Median -0.020738
800 Maximum 7.015330
Minimum -6.308741
600 Std. Dev. 1.013496
Skewness -0.189057
400 Kurtosis 5.086381

0
-6 -4 -2 0 2 4 6
Figure: GED with fixed parameter

.2
.1
.2 .0
.1 -.1
.0 -.2
-.1
-.2
1000 2000 3000 4000 5000 6000
Residual Actual Fitted
Figure: Residual Graph
52
CONCLUSION
By studying the worldwide economic market, we can find relation between local or
global share market and crude prices. If investor wants to minimize the risk factor for
investment in energy related stocks, then he must understand the correlation between
crude price and local as well as global stock price. In this paper distinctive techniques
are depicted to perform long run and additionally short-run investigation between
Indian stock exchange and raw crude oil costs. This review is utilized to discover
exhaustive comprehension on the dynamic connection between oil cost and stock
exchange in India. This review alongside execution is required to offer a few bits of
knowledge for money related controllers and policymakers for planning monetary and
budgetary strategies.
53
REFERENCES
1. Al-Fayoumi, N.A. (2009), Oil prices and stock market returns in oil importing
countries: the case of Turkey, Tunisia and Jordan, European Journal of
Economics, Finance and Administrative Sciences, No. 16, pp.84-98.
2. Chunhong Li, Zhongying Qi, Tan Li, Tang Jie, Xiaona Wang, Dynamic
Relationship between Oil Price and China Stock market, 978-1-61284-109-
0/11/$26.00 2011 IEEE.
3. Johansen, S. (1991), Estimation and Hypothesis Testing of Co integration
Vectors in Gaussian Vector Autoregressive Models, Econometrical
Econometric Society, Vol. 59(6), Page 1551-80.
4. S. Sujit,B. Rajesh Kumar(2011), Study on dynamic relationship among gold
price, oil price, exchange rate and stock market returns, International Journal of
Applied Business and Economic Research, Vol.9, No. 2, (2011): 145- 165.
5. Manish Kumar, The Impact of Oil Price Shocks on Indian Stock and Foreign
Exchange Markets, ICRA bulletin Money Finance february.2014.
6. Sahu, T. N., Bandopadhyay, K., Mondal, D. (2014), An empirical study on the
dynamic relationship between oil prices and Indian stock market, Managerial
Finance, 40(2), 2002
54

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TABLE OF CONTENTS

SI. PARTICULARS PAGE

1.1 Crude Oil Industry

1.2 The Impact Analysis

1. The import bills

2.1 Inverse correlation:

2.2 Positive correlation:

2.3 Literature Review

2.4 Statement of the Problem

India is not self-reliance on crude oil production; therefore, it is necessary and

The import requirement of crude oil is 73 – 76 % of total demand, which is

2.5 Objectives of the study:

3.1 Conceptual Framework:

3.2 Research Design:

Research design is a blueprint of the study conducted, which includes steps of

3.3 Sources of Data:

3.4Sample Size and Justification

3.5 Econometrics Modeling for the Hypotheses:

Yt= a + bX + et ---------- (1)

In another attempt, to carry out the quantification of expected influence of inflation on

YGDP = a1 + b1 XInflation+ et ----------(2)

YGDP = β1 + β2Xinfla. + β3Xrate of change of crude oil price.

On a priori reasoning let us assume that the GDP growth is dependent on

Granger (1969) proposed a time series data-based approach in order to determine

 Yt (GDP). = Σni=1αi X t-i ( infla) + Σnj=1 βjYt-j(GDP) + u1t

 X t (infla). = Σni=1λiX t-i.(infla) + Σnj=1 δjYt-j(GDP) + u2t‟

Where, disturbance terms u1t, u2t are uncorrelated.

The “Cobb-Douglas” production function is applied for estimating the output of

y= A ert ha kb Ec ------------ equation (1)

h = labor measured in man-days

k = Capital input or capital employed in the business,

A = a scaling factor; t = year;

r = is the trend rate of growth of output due to technological change;

a,b,c = are the output elasticities of respective inputs.

Now, if enterprises maximize economic profits, they employ energy at a rate

E = c.Y. (pe / pd)-1 ----------equation (2)

Global Oil Scenario

Table 4.0. Distribution of World proved Oil reserves

Total world 234.3 1652.6 100% 54.2

4.1. Classification of Crudes

The geographic location is important because it affects transportation costs to

4.2. Structure of the Industry and Global Oil Production

Table 4.2. Global Oil Production

£ Excludes Former Soviet Union.

Source: BP Statistical Review of World Energy June-2012.

4.3. Global Oil Consumption

Table 5.3 Global Oil Consumption

Total Asia Pacific 1201.6 1211.2 1281.7 1316.1 2.7% 32.4%

Total World 3987.3 3908.9 4031.9 4059.1 0.7% 100.0%

of which: OECD 2208.9 2097.8 2118.0 2092.0 -1.2% 51.5%

4.4. Indian Scenario.

2. Post-Independence Period (1947-1960):

3. Mixed Economy Period (1961-1991):

4. Economic Liberalization 1991:

4.4.1. Crude Oil and Natural Gas Production in India.

Table 4.4.1. Crude Oil and Natural Gas Production in India

Year Crude Oil % Natural %

% Growth of Crude Oil Production - % Growth of Natural Gas Production

SWOC Analysis of Stock Market

 Stock market provides an opportunity to money lender and money seeker to

 Capital market instrument is highly risky then money market.

Result and Analysis

Figure: Variation of Crude value with years

CRUDE = C(18)SENSEX(-1) + C(19)SENSEX(-2) + C(20)SENSEX(-3) + C(21)SENSEX(-4) +