Grey Prediction with Markov-Chain for Crude Oil Production and Consumption in China

Abstract

The crude oil demand is growing rapidly in China, driven by its rapid industrialization and motorization. China has already become the second-largest oil importer nation in the world, after the United States. The dynamic GM (1,1) model of grey theory is used to develop the dynamic GM(1,1) model to forecast the crude oil consumption and production in China. In order to improve the forecast accuracy, the original GM (1, 1) models are improved by using Markov-chain. We analyze the data of the crude oil consumption and production from 1990 to 2006 in China, and forecast China’s crude oil consumption and production by this Grey-Markov forecasting model, which shows that the improved grey forecasting model is of more reliability and higher forecast accuracy than GM (1, 1). The forecast results indicate that China’s crude oil consumption and production will continue to increase rapidly in the period of 2007 to 2015.