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ЭКОНОМИЧЕСКИЕ НАУКИ
УДК 338.12 DOI: 10.24411/1999-5407-2020-10101
OIL PRICES AND SOLAR ACTIVITY: EVIDENCE OF STRONG TIES (1861-2019)
V. A. Belkin
Chelyabinsk
In this work author is using methodological approach developed by W. S. Jevons and A. L Chizhevsky. Years of solar cycles were numbered in prescribed astrophysics manner, combined and compared against average values of Brent oil price. Grouping of data by years of solar cycle allowed developing regressive polynomial model where Brent crude oil price1 is dependent variable and number of respective years in the solar cycle is independent. Resulting R-squared value is equal to 0.9897. This model allows forecasting of prices on oil basing solely on year number in solar cycle. Model suggests that 2020's Brent Crude price will decrease to USD 48.798 level per barrel andforecasted values of Crude Brent for 2021 and 2022 are USD 47.957 and USD 61.175per barrel respectively.
Key words: Oil price, solar cycle, Wolf number, forecasting of oil price.
Dedicated to my father, the famous biologist Alexey Nikiforovich Belkin
It goes without saying that oil price forecast has gained high relevance. Economic literature has great amount of publications showing strong ties between dynamics of oil prices and macroeconomic indicators of Russia. However, current situation with forecasting oil prices is well described in article of Nikita Krychevsky and Igor Astafiev name of which can be translated approximately as 'Finger to barrel'. In the article authors describe multiple facts of constant blunders in oil price forecasts from many prominent scientists, industry professionals and high-ranked public officers [2].
Author of this research published oil price forecast back in 2015 which showed further decrease in oil prices in 2016 and its downtrend reversal in 2017 and further growth to 2019. This proved to be accurate to a high degree. In the same publication author describes grounds for decrease of oil prices in 2020 [1. P. 24]. Forecast was based on the results of studying ties between oil prices and annual average sunspots numbers (Wolf numbers) between 1861 and 2015. Success of that forecast motivated author to continue research in order to advance forecast methodology based on sunspot numbers.
Conventional economics explains cycles of one economic indicator (for example, GDP) by cycles of another economic indicator such as propensity to save, innovations, credit interest rates, monetary stock, which nature (amplitude and cycle duration) is also unknown. This seems like explaining one unknown variable by another which is also unknown. It is obvious that main issue of forecasting of economic dynamics is hidden in establishing of independent variable.
Great scientists F. W. Herschel, W. S. Jevons and A. L. Chizhevsky found that such independent variable is solar activity and laid foundation to methodology of studying relation between the Sun and economic activity. For example, W. S. Jevons in his article "The solar-commercial cycles" compared sunspot number cycles with corn prices in Delhi between 1760 and 1810 [7. P. 227].
1 Further on called as 'oil price' for short.
A. L. Chizhevsky built a chart comparing average solar activity cycle (Wolf number) with average annual incidence of cholera disease over 100 years between 1823 and 1923 in his monography 'Cosmic pulse of life. Earth in Sun's arms" in chapter 4 ('Sun and epidemic', chart number 33)[6.p.11].
In monography 'Terrestrial echo of solar storms' A. L. Chizhevsky placed chart of cereal crops yield in Russia and chart of solar activity (Wolf number) one below the other. This showed close link between those [5. P. 106]. Both graphs have significant timeseries length.
In this research author continues study solar-terrestrial links by investigating relationship between year number in a solar cycle and average annual oil prices in the period between 1861 and 2019.
Annual Wolf number was used as main indicator of solar activity. Wolf numbers were retrieved from database of World Data Centre for the production, preservation and dissemination of the international sunspot number [10]. This data can be found in column 2, table 1.
Oil prices were retrieved from British Petroleum database publicly available online [9]. All prices are valued in 2018 US dollar apart from price for year 2019 which was calculated by author as an average of monthly prices over the year. Data was retrieved from database of oil producer Petroleum & Other Liquids [8].
Year numbers in Table 1 are solar cycle years were year number 1 refers to the year when Wolf number reverses from its downtrend. Further numeration continues until the end of another downtrend where last year of the cycle is the last year of downtrend. Years of minimum values of Wolf number are given in bold in Table 1.
Solar cycle year numbers for years between 1861 and 1866 are assumed based on that year 1856 was the last year of previous solar cycle.
Table 1
Annual average Wolf number, oil price and solar cycle year for the period _from 1861 to 2019_
Year Wolf numbers Serial number of a year in solar cycle Oil prices, $ 2018
1861 146.6 5 13.64
1862 112.1 6 26.30
1863 83.5 7 63.98
1864 89.2 8 128.88
1865 57.8 9 107.66
1866 30.7 10 63.88
1867 13.9 11 43.12
1868 62.8 1 68.20
1869 123.6 2 68.39
1870 232.0 3 76.34
1871 185.3 4 90.60
1872 169.2 5 75.99
1873 110.1 6 38.20
Year Wolf numbers Serial number of a year in solar cycle Oil prices, $ 2018
1874 74.5 7 25.86
1875 28.3 8 30.74
1876 18.9 9 60.12
1877 20.7 10 56.83
1878 5.7 11 30.84
1879 10.0 1 23.08
1880 53.7 2 24.62
1881 90.5 3 22.29
1882 99.0 4 20.21
1883 106.1 5 26.84
1884 105.8 6 23.38
1885 86.3 7 24.49
1886 42.4 8 19.76
1887 21.8 9 18.65
1888 11.2 10 24.49
1889 10.4 11 26.16
1890 11.8 1 24.22
1891 59.5 2 18.65
1892 121.7 3 15.59
1893 142.0 4 17.81
1894 130.0 5 24.28
1895 106.6 6 40.88
1896 69.4 7 35.47
1897 43.8 8 23.75
1898 44.4 9 27.36
1899 20.2 10 38.78
1900 15.7 11 35.77
1901 4.6 12 28.86
Year Wolf numbers Serial number of a year in solar cycle Oil prices, $ 2018
1902 8.5 1 23.12
1903 40.8 2 26.16
1904 70.1 3 23.94
1905 105.5 4 17.26
1906 90.1 5 20.32
1907 102.8 6 19.33
1908 80.9 7 20.04
1909 73.2 8 19.48
1910 30.9 9 16.37
1911 9.5 10 16.37
1912 6.0 11 19.18
1913 2.4 12 24.04
1914 16.1 1 20.22
1915 79.0 2 15.82
1916 95.0 3 25.28
1917 173.6 4 30.53
1918 134.6 5 32.99
1919 105.7 6 29.17
1920 62.7 7 38.46
1921 43.5 8 24.26
1922 23.7 9 24.1
1923 9.7 10 19.71
1924 27.9 1 20.99
1925 74.0 2 24.05
1926 106.5 3 26.66
1927 114.7 4 18.79
1928 129.7 5 17.14
1929 108.2 6 18.6
Year Wolf numbers Serial number of a year in solar cycle Oil prices, $ 2018
1930 59.4 7 17.89
1931 35.1 8 10.71
1932 18.6 9 15.98
1933 9.2 10 12.97
1934 14.6 1 18.74
1935 60.2 2 17.73
1936 132.8 3 19.74
1937 190.6 4 20.63
1938 182.6 5 20.13
1939 148.0 6 18.43
1940 113.0 7 18.25
1941 79.2 8 19.43
1942 50.8 9 18.32
1943 27.1 10 17.41
1944 16.1 11 17.26
1945 55.3 1 14.64
1946 154.3 2 14.39
1947 214.7 3 21.35
1948 193.0 4 20.74
1949 190.7 5 18.74
1950 118.9 6 17.82
1951 98.3 7 16.51
1952 45.0 8 16.17
1953 20.1 9 18.10
1954 6.6 10 18.01
1955 54.2 1 18.09
1956 200.7 2 17.82
1957 269.3 3 16.93
Year Wolf numbers Serial number of a year in solar cycle Oil prices, $ 2018
1958 261.7 4 18.06
1959 225.1 5 17.90
1960 159.0 6 16.09
1961 76.4 7 15.10
1962 53.4 8 14.93
1963 39.9 9 14.76
1964 15.0 10 14.55
1965 22.0 1 14.31
1966 66.8 2 13.92
1967 132.9 3 13.53
1968 150.0 4 12.99
1969 149.4 5 12.32
1970 148.0 6 11.63
1971 94.4 7 13.87
1972 97.6 8 14.89
1973 54.1 9 18.60
1974 49.2 10 59.00
1975 22.5 11 53.82
1976 18.4 12 56.47
1977 39.3 1 57.64
1978 131.0 2 54.00
1979 220.1 3 109.33
1980 218.9 4 112.24
1981 198.9 5 99.25
1982 162.4 6 85.79
1983 91.0 7 74.50
1984 60.5 8 69.56
1985 20.6 9 64.32
Year Wolf numbers Serial number of a year in solar cycle Oil prices, $ 2018
1986 14.8 10 33.06
1987 33.9 1 40.75
1988 123.0 2 31.68
1989 211.1 3 36.91
1990 191.8 4 45.58
1991 203.3 5 36.87
1992 133.0 6 34.58
1993 76.1 7 29.49
1994 44.9 8 26.80
1995 25.1 9 28.04
1996 11.6 10 33.08
1997 28.9 1 29.87
1998 88.3 2 19.59
1999 136.3 3 27.09
2000 173.9 4 41.55
2001 170.4 5 34.66
2002 163.6 6 34.93
2003 99.3 7 39.35
2004 65.3 8 50.87
2005 45.8 9 70.10
2006 24.7 10 81.14
2007 12.6 11 87.67
2008 4.2 12 113.43
2009 4.8 1 72.18
2010 24.9 2 91.54
2011 80.8 3 124.2
2012 84.5 4 122.13
2013 94.0 5 117.12
Year Wolf numbers Serial number of a year in solar cycle Oil prices, $ 2018
2014 113.3 6 104.95
2015 69.8 7 55.50
2016 39.8 8 45.76
2017 21.7 9 55.52
2018 7.0 10 71.31
2019 3.6 11 64.39
Sources:
a) Statistical Review of World Energy. BP. [online] Available at: https://www.bp.com/ en/global/corporate/energy-economics/statistical-review-of-world-energy.html [Accessed 23.01.2020.].
b) US Energy Information Administration. Petroleum & Other Liquids. Spot Prices for Crude Oil and Petroleum Products. Monthly. [online] Available at: https://www.eia.gov/dnav/ pet/hist/LeafHandler.ashx?n=PET&s=RBRTE&f=M [Accessed 23.01.2020.].
c) World Data Center for the production, preservation and dissemination of the international sunspot number. Sunspot Number. Yearly mean total sunspot number [1700-now]. [online] Available at: < http://www.sidc.be/silso/ssngraphics>, accessed 23.01.2020.
Data in Table 1 was grouped in Table 2 by year number in solar cycle. Column 2 of Table 2 contains number of occurrences of each solar cycle year between 1861 and 2019. For example, value '14' in column 2 corresponding to year 1 means that first years of a solar cycle appeared 14 times in the period between 1861 and 2019. Accordingly, value '4' corresponding to year 12 means that there were only 4 of 12th years of solar cycle. Column 3 contains average of Wolf numbers for corresponding year in solar cycle. Similarly, column 4 contains average oil prices for corresponding year in solar cycle between 1861 and 2019. All 159 years in range between 1861 and 2019 were included in the calculations.
Table 2
Grouped average Wolf numbers and oil prices by solar cycle for years 1861-2019
Serial number of the year solar cycle Number of solar cycle years for the period 1861 to 2019 Average of the Wolf numbers for each solar cycle year for the period 1861 to 2019 Average of the price of oil for each solar cycle year for the period 1861 to 2019, $ 2018
1 14 27.86 31.86
2 14 91.41 31.31
3 14 150.99 39.94
4 14 163.18 42.08
5 15 154.71 37.88
6 15 126.50 34.67
Serial number of the year solar cycle Number of solar cycle years for the period 1861 to 2019 Average of the Wolf numbers for each solar cycle year for the period 1861 to 2019 Average of the price of oil for each solar cycle year for the period 1861 to 2019, $ 2018
7 15 82.33 32.58
8 15 56.08 34.40
9 15 32.95 37.20
10 15 17.81 37.37
11 9 11.74 42.02
12 4 8.70 55.70
Total 159
Column 2 and 3 were used to build chart (ref. Figure 1) which shows strong relation between oil price and year number in solar cycle between 1861 and 2019.
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Year number in solar cycle
Fig. 1. Polynomial function of oil price and year number in solar cycle for 1861-2019
Polynomial regression where oil price is dependent variable and year number in solar cycle is independent has R-squared equal to 0.9897. This means that polynomial equation shown on Figure 1 closely describes strong relation between oil prices and therefore is a proof that oil price and year number in solar cycle have in fact strong relation. Contemporary science should accept this as economic and astrophysical fact.
Consequently, developed formula can be used in order to forecast movement of oil prices based on year number in solar cycle. For example, solar activity is expected to rise in 2020 after its minimum in 2019 (ref. Figure 2). This suggests that 2020 is the first year of new 25th solar cycle and 2020's solar cycle number is 1.
Relation of prices shown on Figure 1 can be used for forecasting oil prices. For example, from Table 2 we see that year 1 in solar cycle has average oil price of $31.86 and year 11 has average oil price of $42.02. Relation can be proportionally written as $31.86/$42.02 = 0.7582. Given that 2019's average oil price is equal $64.36 (ref. Table 1), we have that forecast oil price for 2020 is 0.7582 * $64.36 ~ $48.80.
From same Table 2 we get that average oil price for the second year of solar activity, which should be 2021, is proportionally 0.9828 as $31.31/$31.86. Consecutively, forecast oil price for 2021 is 0.9828 * $48.80 = $47.96. Accordingly, oil price forecast for year 2022 is equal to $61.17.
Forecast: Combined method
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RBK2 published their forecast for oil price for 2020 which says: "Oil manufacturers and industry experts say that oil prices in next [2020] year will remain at levels of 2019 which is around $60 per barrel" [4]. This is significantly higher that my forecast of $48.80 per barrel.
Figure 3 was built based on columns 2 and 3 of Table 2. It shows strong relation average annual values of Wolf number and average annual oil price. R-squared is equal to 0.9082 which means that polynomial equation from Figure 3 closely describes original data.
It is noticeable that R-squared for year number in solar cycle (Figure 1) and Wolf number are somewhat different. It can be hypothesised that although Wolf number is considered as main indicator of solar activity but there are other influencing factors which might not be known to contemporary science.
Chart of average values of Wolf number and oil prices combined by year number in solar cycle for the period from 1861 to 2019 is given in Figure 4. It is seen that when values of Wolf number rise above 77.02 there is positive association between Wolf number and oil price and vice versa for Wolf number values below 77.02.
Author believes that it is important to acknowledge the mechanism of strong relation between solar activity and economic activity. Fact of such relation is clear and must be accepted by conventional economics.
2 Leading Russian business consulting agency.
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Fig. 3. Polynomial function of oil price and average values of Wolf number grouped by year
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Fig. 4. Average annual values of Wolf numbers and oil prices grouped by year number
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It can be a lengthy conversation to discuss mechanisms of shown relations. In author's previous works, he made attempts to explain it based on works of leading helio-biologists like A.L. Chizhevsky, U.I. Gurfinkel, V.N. Obridko, O.B. Novik, F.A. Smirnov, A. Stupel who
proved negative influence of both maximums and minimums (A. Stupel) of solar activity on health and phycological condition of people.
PhD of physico-mathematical sciences V.N Obridko together with co-authors showed strong relation between Wolf numbers and unexpected magnetic storms. Correlation coefficient of those is equal to 0.872 ± 0.06 which is strong [3, p.159]. Therefore, graph of Wolf number values plotted on Figure 4 can be considered as graph of number of unexpected magnetic storms. Figure 3 shows, that oil price reaches its peak when Wolf numbers are on its very lows and highs or, interchangeably, it can be said to be low and high number of unexpected magnetic storms. Aforementioned helio-biologists also showed that number of medical disorders grows within same periods.
Practical application of this research is developed methodology of oil price forecasting by year number in solar cycle. Existence of such methodology underlines necessity to include Helioeconomics course in university programmes.
Limitation of this forecasting methodology is that it is based on forecast of solar activity which in its turn may not always be correct. For example, 2020 may appear not as 1st year in new 25th solar cycle but 12th year of preceding cycle if its Wolf number will be lower than the one of 2019. Though, as practice shows, solar activity forecast mistakes made by astrophysicists are less likely to occur as compared with forecasts of economists about economic dynamics. Even possible solar activity forecast error for 2020 would not diminish existence of strong links between cycles solar activity and cycles of oil prices.
Positive review on astrophysical part of the research was obtained from V. N. Obidko3.
This research was previously published in Russian language in "Chelyabinsk humanities" magazine, vol. 4, 2019, that is, before the fall in oil prices in 2020.
Author thanks Evgenii Vladimirovich Belkin for help in translating this research on English.
References
1. Belkin, V. A. (2015). Cikly cen na neft' i magnitnyh bur': mekhanizm i fakty sil'nyh svyazej (1861-2015 gg.) [Cycles of oil prices and magnetic storms: mechanism and facts of strong ties (1861-2015)], in: Chelyabinskij gumanitarij [Chelyabinsk Humanities], no. 3 (32), pp.16-28. (In Russ.).
2. Krichevskij, N. and Astaf'ev, I. (2016). Pal'cem v barrel' [Hit or Miss Barrel], in: Novaya gazeta [New Newspaper], Issue No. 5 of January 20, 2016, available at: http://www. novayagazeta.ru/economy/71493.html accessed 23.01.2020.
3. Obridko, V. N. (2013). Solnechnaya aktivnost' i geomagnitnye vozmushcheniya [Solar activity and geomagnetic disturbances], in: Geomagnetizm i aeronomiya [Geomagnetism and Aeronomy], Volume 53, no. 2, pp. 157-166 (In Russ.).
4. Fadeeva, A. and Podobedova, L. (2020). Prognoz na 2020 god: skol'ko budut stoit' neft' i rubl' [Forecast for 2020: how much oil and ruble will cost], in: RBK [RosBusinessConsulting] January 03, 2020, available at: https://www.rbc.ru/economics/03/01/2020/5e04891e9a7947662 5d41d8b accessed 25.01.2020.
5. Chizhevskij, A. L. (1976). Zemnoe ekho solnechnyh bur' [Earth echoes of solar storms], "Think", Moscow, 367 p. (In Russ.).
6. Chizhevskij, A. L. (1995). Kosmicheskij pul's zhizni: Zemlya v ob"yatiyah Solnca [Chizhevsky, A. L. Cosmic Pulse of Life: Earth in Sun's arms. "Think", Moscow, 767 p. (In Russ.).
7. Jevons, W. S. (1882). The solar-commercial cycles, in: Nature, July 6, pp. 226-228.
3 PhD of physico-mathematical sciences, professor in Astrophysics, chief research fellow of physics of Sun and solar-terrestrial links department of State Institute of Terrestrial Magnetism, Ionosphere and Radio Wave Propagation n.a. N.V. Pushkov of Russian Academy of Sciences.
8. US Energy Information Administration. Petroleum & Other Liquids. Spot Prices for Crude Oil and Petroleum Products. Monthly, available at: https://www.eia.gov/dnav/pet/hist/ LeafHandler.ashx?n=PET&s=RBRTE&f=M, accessed 23.01.2020.
9. Statistical Review of World Energy. BP, available at: https://www.bp.com/en/global/ corporate/energy-economics/statistical-review-of-world-energy.html, accessed 23.01.2020.
10. World Data Center for the production, preservation and dissemination of the international sunspot number. Sunspot Number. Yearly mean total sunspot number [1700-now], available at: http://www.sidc.be/silso/ssngraphics, accessed 23.01.2020.
Belkin Vladimir Alexeyevich - PhD in Economics.
