Download This PaperReasonable Predictions of Oil Prices: Why is it So Difficult?
10 Pages Posted: 13 May 2019 Last revised: 6 Apr 2020
Date Written: January 1, 2020
Abstract
The beginning of the new century was marked with another petroleum boom and bust cycle. The rapid increase in the oil price and its sudden and dramatic decline raises a fundamental question about the oil industry: Why is it so difficult to accurately predict the price of oil? Supply-demand balance, economic growth, oil inventories, and spare capacity are market fundamentals that drive oil prices and market dynamics. Market financialization, resources availability, technology advancements, and geopolitical events are also important nonfundamental drivers of oil price movements. Collaborative efforts should be geared towards: an acceptable and reasonable level of oil prices for the benefits of oil producers and consumers alike; meeting the future oil demand and availing adequate spare capacity to the market; and incentivizing upstream capital investment. Reasonable predictions of oil prices require a reliable and consistent data, rigorous advanced analytical methods, intelligent forecasting tools, and a better understanding of the influential factors impacting the oil prices and oil market conditions.
Keywords: Oil prices, Price predictions, Oil markets dynamics, Price volatility, Oil markets strategies, OPEC
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