INSECURITY AND RATIONAL EXPECTATION OF OIL PRODUCTION IN NIGERIA (1998-2021): A TEST OF AUTOREGRESSIVE INTEGRATED MOVING AVERAGE (ARIMA) PROCESS

Abstract

This paper investigated quantitatively, “Insecurity and Rational Expectations of Oil Production in Nigeria” (1998 - 2021); A Test of Autoregressive Integrated Moving Average (ARIMA), process, was adopted. For the achievement of these aims, we put forward and specified the models with variables such as: Production of oil, domestic Crude oil theft (Oil bunkering), supply (Export) of oil and the price of oil in the world market. These variables were extracted from the CBN statistical bulletin and from the NBS bulletin (Various issues). The econometric methods of autoregressive integrated moving average (ARIMA) process, popularized by G.P.E. Box and G.M. Jenkins of Time series Analysis for forecasting and control, otherwise known as the Box-Jenkins (BJ) methodology was used in the analysis. Given the empirical result, based on the ARIMA specification, 2 Autoregressive and 2 moving averages (2AR:2MA), were identified. The empirical result also, revealed that, the aprior expectation was constant in the estimation. The result showed that the expectation of oil production in Nigeria is a function of the lag values and those of the domestic crude oil theft (oil bunkering), supply (Export) of oil and the global oil prices. Furthermore, the coefficient of determination (R²), shows that about 0.993701 (99.4%) of the total variation in Oil production is determined by the domestic crude oil theft, supply (Export) and oil price, current and lagged values. The paper identified insecurity as a major cause of domestic crude oil theft (Oil bunkering) in Nigeria, hence the cause of Nigeria’s underdevelopment status. Consequently, based on the results, appropriate policy recommendations were made, which include amongst others, that adequate measures must be put in place to curb insecurity, hence preventing domestic crude oil theft (Oil bunkering) in the Niger- Delta region of Nigeria.