How Effective Are Quantitative Methods in Forecasting Crude Oil Prices?

Journal of Financial Management and Analysis, 28(1) January-June 2015

Posted: 18 Oct 2015

See all articles by Alex Faseruk

Alex Faseruk

Memorial University of Newfoundland (MNU) - Faculty of Business Administration

Lawrence Bauer

Memorial University of Newfoundland (MNU) - Faculty of Business Administration

Minh Cao

Memorial University of Newfoundland (MNU)

Pavan Purohit

Memorial University of Newfoundland (MNU)

Date Written: 2015

Abstract

In this paper statistical and econometric modeling of West Texas Intermediate (WTI) crude futures prices is performed in order to forecast the crude futures prices one, two, and three months in advance. The price movement is modeled using multiple fundamental factors. The results are tabulated and compared for the effectiveness of the techniques. The price of crude oil has a cascading effect on other goods and services. Therefore, predicting crude oil price movement is an important requirement for any risk management strategy. Participants in the crude oil trading market generally include exploration and production companies (upstream E&P), speculators, down-stream operators and integrated producers. Crude oil price movement can be modeled using various computational methods, such as, ARIMA and VAR. These computational methods help to determine the models that best fit the available data and give an insight into the future movement. For this reason, computational methods are highly regarded within both the academic community and industry.

Keywords: West Texas Intermediate; Crude future prices forecast; Crude oil price; Cascading effect; Computational methods

JEL Classification: C52; G13; G17; L72; O51

Suggested Citation

Faseruk, Alex and Bauer, Lawrence and Cao, Minh and Purohit, Pavan, How Effective Are Quantitative Methods in Forecasting Crude Oil Prices? (2015). Journal of Financial Management and Analysis, 28(1) January-June 2015, Available at SSRN: https://ssrn.com/abstract=2675528

Alex Faseruk (Contact Author)

Memorial University of Newfoundland (MNU) - Faculty of Business Administration ( email )

St. John's, Newfoundland A1B 3X5
Canada

Lawrence Bauer

Memorial University of Newfoundland (MNU) - Faculty of Business Administration ( email )

St. John's, Newfoundland A1B 3X5
Canada

Minh Cao

Memorial University of Newfoundland (MNU) ( email )

Faculty of Education
St. John's, Newfoundland A1B 3X5 A1C 5V3
Canada

Pavan Purohit

Memorial University of Newfoundland (MNU) ( email )

Faculty of Education
St. John's, Newfoundland A1B 3X5 A1C 5V3
Canada

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