Influential factors in crude oil price forecasting

Abstract

This paper identi…es factors that are in ‡uential in forecasting crude oil prices. We consider six categories of factors (supply, demand, …nancial market, commodities market, speculative, and geopolitical) and test their signi…cance in the context of estimating various forecasting models. We …nd that the Least Absolute Shrinkage and Selection Operator (LASSO) regression method provides signi…cant improvements in the forecasting accuracy of prices compared to alternative benchmarks. Relative to the no-change and future-based models, LASSO forecasts at the 8-step ahead horizon yield signi…cant reductions in Mean Squared Prediction Error (MSPE), with MSPE ratios of 0.873 and 0.898, respectively. We also document substantial improvements in forecasting performance of the factor-based model that employs only a subset of variables chosen by LASSO. Finally, the time-varying nature of the relationship between factors and oil prices are used to explain recent movements in crude oil prices.

Oil financialization and volatility forecast: Evidence from multidimensional predictors

“…US dollar index. Miao et al, (2017) highlight the importance of the US dollar index in influencing oil prices and show that a weaker dollar usually leads to higher oil prices. Moreover, Liu, Ji, and Fan, (2017) demonstrate the dynamic linkage between the dollar index and the crude oil price.…”

“…Following De Roon, Nijman, and Veld, (), the percent position held by noncommercial traders is referred to as “speculative behavior” in the crude oil market. US dollar index . Miao et al, () highlight the importance of the US dollar index in influencing oil prices and show that a weaker dollar usually leads to higher oil prices. Moreover, Liu, Ji, and Fan, () demonstrate the dynamic linkage between the dollar index and the crude oil price. S&P 500 stock index .…”

“…In addition to the commodity and financial properties of the crude oil market, oil-related events that create uncertainty about future supply or demand lead to more volatility in crude oil prices. Miao, Ramchander, Wang, and Yang, (2017) measure a geopolitical property of crude oil price volatility by considering the total number of terrorist attacks in the Middle East and North Africa and introduce this index as an important variable in their prediction model. Antonakakis, Chatziantoniou, and Filis, (2014) find that economic policy uncertainty was one of the leading factors in crude oil price volatility during the Great Recession of 2007-2009.…”

Oil Production as a Leading Indicator for Tanker Freight Market

“…In another study, Ewing and Thompson (2007) have investigated the relationship between macroeconomic variables such as consumer prices and industrial production. They have found that oil prices leading consumer prices but lagging industrial production (Miao et al, 2017). The study approaching from the other perspective has revealed that the effect of oil price to equity market performance in developed markets has varied throughout the sample.…”

“…The decline process continued at a rapid pace and oil price went down to $29 per barrel. This situation resulted in a great decrease in the revenues of the oil exporting countries such as Russia and Saudi Arabia, generating stress on the economies, while in the net oil importing countries such as China and India, it caused the increase of the savings and prosperity (Miao et al, 2017). When it comes to macroeconomic effects, the effects of oil prices on inflation, capital market, investments and some other macro variables can be mentioned.…”