Beyond the Barrel: Evolving Oil Price Forecasting Models in an Era of Uncertainty and Transition

Abstract

For 50 years, the increasing instability in crude oil prices has motivated researchers to construct forecasting models. Three major theories of oil price forecasting models have been established, among which target capacity utilization (TCU) models have emerged as most useful. This article reviews existing models built on the basis of the TCU rule in order to show that recent economic events have made previous models void. Building on the TCU rule, it thus attempts to build a new model fitted to current data and reflect the current state of economic uncertainty. This model is applied to existing data to forecast crude oil prices further. It is highlighted that a multiple nonlinear regression model can be established to forecast crude oil prices better than using naïve forecasting or past models. Using this model, future research could gain in precision and draw accurate conclusions for politics among other stakeholders.