INTERNATIONAL JOURNAL Of ACADEMIC RESEARCH

Vol. 3. No. 2. March, 2011, Part IV

GREY MARKOV MODEL FOR PREDICTING THE CRUDE OIL

PRODUCTION AND EXPORT IN IRAN
1

Shaghayegh Kordnoori , Hamidreza Mostafaei

2*

MSc. of Statistics, Islamic Azad University, North Tehran Branch.

Assistant professor, Faculty of Science, Islamic Azad University, North Tehran Branch and Department
of Economics Energy, Institute for International Energy Studies, (Affiliated to Ministry of Petroleum) (IRI)
E-mails: sh_kordnourie@yahoo.com, h_mostafaei@iau-tnb.ac.ir

ABSTRACT
The Grey system theory can powerfully deal with incomplete and uncertain information system. In this
paper, we studied the Grey-Markov forecasting model which has the advantages of both GM (1, 1) forecast and
Markov transition probability matrix forecast. This model combined the grey system and the markov theory into a
higher precision model. Its application in energy system was addressed in this paper. The data of crude oil
production and export from 1979 to 2006 in Iran was used as two forecasted examples. Combining with GM (1, 1)
model, the result showed that not only the Grey- Markov forecasting model was more appropriate for heavy
random fluctuation but also it improved the prediction accuracy.
Key words: GM Model, Grey System Theory, GreyMarkov Model, oil, Iran.
1. INTRODUCTION
Grey theory invented originally by deng[5]. It includes system analysis, data processing, modeling,
prediction, decision making and control. A system is called white if all the information of the system is known.
However, a system is called black if we dont know anything about it. Therefore, a grey system is the one which is
partially known. The Grey system has been widely used in different systems such as social, economic, financial,
energy, industrial, etc systems. Grey prediction is a powerful forecasting model when the number of observations is
not large. Grey prediction based on grey Model (GM) has three basic operations: accumulated generating
operation (AGO), inverse accumulated generating operation (IAGO) and grey modeling [2].
Lin and et al [3], compared differences of event study method and grey forecasting during a definite
estimation period. They estimated stock returns by GM (1, 1). Xiang and Wang [7] used the Grey Markov model in
Agricultural production forecast. Ma and Zhang [4] applied the dynamic GM (1, 1) to forecast the crude oil
consumption and production in china. Hsu and Chen [1], used a modified grey forecasting model to predict the
power demand in Taiwan.
Most of the Mathematical and Statistical models which are studied in recent years for energy system
forecasting are not demonstrated the real changing situation of energy system completely ,because they consider
the energy system as a white system The energy system is an inexact information system located between black
box and white box . Therefore, it is a typical grey
system [6]. We try to forecast the Irans crude oil production and export by the grey theory. With the
worlds third largest proven oil reserves and second largest proven reserves of gas, the Islamic Republic of Iran is
the second major oil producer in the Gulf region. The country is OPECs second-largest producer and exporter and
is the fourth-largest exporter of crude oil globally. By calculating the transition probability matrix we predict the
future regulation of the system. Finally, we increase the prediction accuracy by integrating the GM (1, 1) with
Markov model.
2. METHODS
This section will indicate how to establish the mathematical model. Denote the original data sequence by
( )
(k)=( ( ) (1), ( )(2), ( ) (3), , ( ) ( ) )
(1)
Where n is the number of observed data. The AGO is expressed as
( )

(k)=(

( )

( )

(1),

(2),

( )

(3), ,

( )

( ))

(2)

Where
( )

(1)=

( )

(1) ,

( )

(k) =

( )

( )

for k=2,3,,n

(3)

The first-order differential equation of GM (1,1) model is

( )(

+a ( )(k) = b
(4)
Therefore, the solution of Eq. (4) can be obtained using the least square method. That is
( )

( + 1)= (

( )

(1) )

(5)

Where

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INTERNATIONAL JOURNAL Of ACADEMIC RESEARCH

[ , ]=(

Vol. 3. No. 2. March, 2011, Part IV

(6)

And
( )
(1) + ( )(2) ,
(
( )

(2) + ( ) (3) ,
B= (

( )
(

1)
+ ( )( ) ,

=[

( )

(2),

( )

( )

(3),

(4), ,

(7)

( )]

(8)

1
( )

The predicted values for the original data that can be acquired by IAGO are obtained as follows:
( )
( )
( )
( + 1)=
( + 1)
( )
(9)
Let
( )
(k)=
( + 1)
(10)
Where (k) is the prediction value of time k obtained by GM (1, 1).It also reflects the original data
development regulation.
Since is a Markov chain, we can divide it into several zones which are parallel to the regulation curve
according to specific circumstance and any zone
can be stated as:
=[
,
]
i=1, 2, 3 n
(11)
Where
=

( )

( + 1) +

i=1, 2, 3 n

(12)

( )

( + 1) +

i=1, 2, 3 n

(13)

Here ,
are constant, which can be obtained by the difference between the raw data and forcasting
regulation curve.
and
change with time.We defined the borderlines of the zones above the regulation curve
( )
as upper borderlines and the ones under as lower borderlines. Suppose the upper borderline is
( + 1) +
and the lower one is
equations:

( )

( + 1)

. Using the least square method,

( )

( )

( + 1)
( + 1)

( )
( )

and B are obtained by the following

( + 1) /

(14)

( + 1) /

(15)

Where ( ) ( + 1) is the observed data above the regulation curve, p is the number of these
( + 1) indicates the observed data below the regulation curve and q is the number of these lower data.
data,
( )
( )
( + 1) + ,the bottom borderline to be
( + 1)
Suppose the top borderline to be
.
Take the top borderline as an example, it can be decided by two rules. First, all the observed values
should be below this borderline; Second ,make sure the summation of differences between the opposite points of
the top borderline and forecasting regulation curve is of minimum. That is,
( )

( )

C=max { ( ) ( + 1)( + 1) }
Similarly, D can be obtained by the following equation:
( )
D=max {
( + 1)- ( ) ( + 1)}
By getting A, B, C and D, we have four zones as follows:
( )
( )
( + 1)+A,
( + 1) + ]
=[
( )
( )
( + 1) ,
( + 1)+A]
=[
=[

( )

(16)
(17)

( )

( + 1) ,
( + 1)]
( )
( )
( + 1) ,
( + 1) ]
=[

(18)
More subzones can be divided in each zone above with the same method. Next, the mth step transition
probability of a Markov chain is calculated as
=

( )

i,j=1,2,3,,n

Where
( ) is the data number of the raw series which transfer m steps from
number of data that is in the zone . The transition matrix P(m) is as follows:
( )
( )
( )
( )
( )
( )
P(m)=
(20)

( )
( )
( )

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(19)
to

and

is the

INTERNATIONAL JOURNAL Of ACADEMIC RESEARCH

Vol. 3. No. 2. March, 2011, Part IV

P(m) portrays the transition regularity between different states and we can predict the future regulation of
the system by examining the transition probability matrix P(m) .If the last data of the original sequence is to be
placed in the zone of
, then look into the kth line of P(m) and if the maximum probability of this line is
,it can
be deduced that the ext state of the system may transfer from
to
.If more than two probability values are the
same or too close in the kth line ,it is needed to check the matrix P(m) (m 2).
Finally, the eventual forecast value can be obtained as
( )
= (
+
)
(21)
Because the forecast is most probable in zone ,by applying (12), (13), ( ) can be expressed as
(

( )

)=

( + 1) + (

(22)

3. APPLICATIONS
Some factors such as the governmental policy, the industry structure and the economic growth can
influence the crude oil production and export. The time series of the crude oil production and export show random
fluctuation. In this section we predict and analyze the crude oil production and export of Iran by Grey markov
forecasting model. The historical data of crude oil production and export from1979 to 2006 are listed in table 1 and
2, respectively.
Table 1.The crude oil production of Iran from 1979 to 2006 (Unit: Thousand barrels per day) [8].
Year
Oil production
Year
Oil production
Year
Oil Production
Year
Oil production

1979
3433.0
1987
2460.0
1995
3612.0
2003
3736.0

1980
1476.0
1988
2557.0
1996
3610.0
2004
3834.0

1981
1441.0
1989
2947.0
1997
3623.0
2005
4106.0

1982
2684.0
1990
3231.0
1998
3666.0
2006
4051.0

1983
2709.0
1991
3366.0
1999
3373.0

1984
2371.0
1992
3484.0
2000
3661.0

1985
2504.0
1993
3609.0
2001
3574.0

1986
2176.0
1994
3603.0
2002
3305.0

Table 2.The crude oil export of Iran from 1979 to 2006(Unit: Thousand barrels per day) [8].
Year
Oil export
Year
Oil export
Year
Oil export
Year
Oil export

1979
2632.0
1987
1546.0
1995
2290.0
2003
2396.0

1980
770.0
1988
1647.0
1996
2441.0
2004
2548.0

1981
791.0
1989
1823.0
1997
2342.0
2005
2602.0

1982
1686.0
1990
2224.0
1998
2300.0
2006
2433.0

1983
2045.0
1991
2460.0
1999
2079.0

1984
1607.0
1992
2397.0
2000
2345.0

1985
1460.0
1993
2184.0
2001
2208.0

1986
1250.0
1994
2220.0
2002
2021.0

We forecast the crude oil production and export of 2007 by applying the Grey-Markov model. Based on
the method which was described in section , from the data in table 1 and 2 and model GM (1, 1) we obtained
( )
Crude oil Production:
( + 1) =93113.4704 .
-89680.4704
Crude oil Export

( )

( + 1) =62141.1687

-59509.1687

( )

( + 1) is obtained by using (9):

Crude oil Production:

( )

( + 1) =2211.0934
( + 1) =1429.0590

( )

.
Crude oil Export
:
According to (14) to (17), it follows that
Crude oil Production: A=396.2725, B=280.7158, C=1221.9066 and D=878.9661
Crude oil export: A=297.4861, B=266.6691, C=1202.9410 and D=706.1259
Therefore four zones are compartmentalized as follows:
Crude oil Production:
( )
( )
( + 1)+396.2725,
( + 1) + 1221.9066]
=[
( )
( )
(
(
=[
+ 1) ,
+ 1)+396.2725]
( )

( )

( + 1) 280.7158 ,
( + 1)]
( )
( )
( + 1) 878.9661 ,
( + 1) 280.7158]
=[
Crude oil export:
( )
( )
( + 1)+297.4861,
( + 1) + 1202.9410 ]
=[
( )
( )
( + 1) ,
( + 1)+297.4861]
=[
=[

=[

( )

( )

( + 1) 266.6691,
( + 1)]
( )
( )
( + 1) 706.1259,
( + 1) 266.6691]
=[

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Vol. 3. No. 2. March, 2011, Part IV

Figure 1 shows these four zones , , ,

from the top down and their borderlines for the crude oil
production .Next we calculate the transition probability matrix. By discarding the last data we observed for the
crude oil production that
=5, =8, =10 and
=4 and the number of the raw data from
to , ,
and
respectively by one step is 3,1,0,1.Thus from (19) and with the same way the transition probability matrix of one
step as follow:
1/5 0 1/5
3/5
5/8 2/8 0
1/8
P(1)=
1/10 7/10 2/10
0
1/4 2/4 1/4
0
From fig.1, we can see that the crude oil production of 2006 is in
, so we examine the third line of P(1),
the maximum probability of this line is
.Hence the next state of the system may transfer from
to .We forcast
the crude oil production of 2007 is probably in
.Finally the forcast production of 2007 can be obtained as follow:
(28)=
(
+
)
( )

(29) - B =4298.6716
=
2
Table 2 shows the forecast value and the precision with GM (1, 1) model and the Grey Markov model. By
comparing these methods we can conclude that the forecast value of Grey Markov forecasting model is more
precise and reliable than the original GM (1, 1).
Figure 2 shows the four zones
, , ,
from the top down and their borderlines for the crude oil
export.By discarding the last data we obtained for the crude oil export that
=6, =9, =7 and
=5 and the
number of the raw data from
to , , and
respectively by one step is 3,3,2,1.Thus from (19) and with the
same way the transition probability matrix of one step as follow:
3/6 0 1/6
2/6
3/9 3/9 2/9 1/9
P(1)=
2/7 4/7 1/7
0
1/5 2/5 2/5
0
From fig. 2 ,we can see that the crude oil export of 2006 is in
,so we examine the third line of P(1) ,the
maximum probability of this line is
.Hence the next state of the system may transfer from
to .We forcast the
crude oil export of 2007 is probably in .Finally the forcast production of 2007 can be obtained as follow:
1
( )
(28)= (
(29) - B =2608.0169
+
)=
2

Fig.1. Forecast curve of the crude oil production of Iran during1979 to 2006.

Fig. 2.Forecast curve of the crude oil export of Iran during1979 to 2006

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Vol. 3. No. 2. March, 2011, Part IV

As comparing with GM (1, 1) model, the forecast values of the crude oil production and export of 2007 by
these two methods are also listed in table 3.This table shows a higher precision obtained by Grey-Markov model.
Table 3.The comparison between GM (1, 1) and the Grey-Markov method

Actual crude oil

production(Thousand
barrels per day)
4058.1
Actual crude oil
export(Thousand
barrels per day)
2480.5

Year
2007
Year
2007

GM(1,1) model
Forecast
value(Thousand
Precision
barrels per day )
4333.6
93.21
Forecast
value(Thousand
Precision
barrels per day)
2741.3
89.48

Grey-Markov model
Forecast
value(Thousand
Precision
barrels per day )
4298.7
94.07
Forecast
value(Thousand
Precision
barrels per day )
2608.0
94.86

4. CONCLUSION
The GM (1, 1) model is a model with some differential equations adapted for variance of parameters.
We applied the grey theory in energy system. The crude oil production and export of Iran were forecasted
by GM (1, 1) and the Grey-Markov model which is the merits of both GM (1, 1) model and Markov transition
probability matrix. We concluded that the Grey-Markov model can achieve a better precision.
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