A Short-Run Crude Oil Price Forecast Model with Ratchet Effect |
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| Authors: | Michael Ye John Zyren Carol Joyce Blumberg Joanne Shore |
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| Institution: | (1) Department of Economics, St. Mary’s College of Maryland, St. Mary’s City, MD 20686, USA;(2) Petroleum Division, EI-42, Office of Oil and Gas, Energy Information Administration, U.S. Department of Energy, 1000 Independence Ave., SW, Washington, DC 20585, USA |
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| Abstract: | From 1992 through early 2004, crude oil prices were predictable by using OECD’s relative inventories and OPEC’s excess production
capacity. However, since 2004, estimated inventories and excess production capacity under-predict crude oil prices. Using
3-D graphical analyzes, three regimes are identified in crude oil markets during the period from January 1992 to December
2007, reflecting market conditions and OPEC policy changes. These graphics show the changing relationship between crude oil
price, inventories and excess production capacity. To reflect this, a ratchet variable, derived from cumulative excess production
capacity, is incorporated into the forecasting model to reflect the changing behavior on both demand and supply sides. This
model provides improved forecasts for the post Gulf War I time period over models without the ratchet mechanism.
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| Keywords: | Crude oil prices Crude oil inventory Crude oil excess production capacity Duesenberry ratchet effect |
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