Oil Price Forecasts for the Long-Term: Expert Outlooks, Models, or Both?

Abstract

Expert outlooks on the future path of oil prices are often relied on by industry participants and policymaking bodies for their forecasting needs. Yet little attention has been paid to the extent to which these area accurate. Using the regular publications by the Energy Information Administration (EIA), we examine the accuracy of annual recursive oil price forecasts generated by the National Energy Modeling System model of the Agency for forecast horizons of up to 15 years. Our results reveal that the EIA model is quite successful at beating the benchmark random walk model, but only at either end of the forecast horizons. We also show that, for the longer horizons, simple econometric forecasting models often produce similar if not better accuracy than the EIA model. Among these, time-varying specifications generally also exhibit stability in their forecast performance. Finally, while combining forecasts does not change the overall patterns, some additional accuracy gains are obtained at intermediate horizons, and in some cases forecast performance stability is also achieved.

Keywords: Oil price, expert outlooks, long run forecasting, forecast combinations

JEL Classification: Q47, C20