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Futures Prices are Useful Predictors of the Spot Price of Crude Oil

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  • Reinhard Ellwanger and Stephen Snudden

Abstract

How well do futures prices forecast the spot price of crude oil? Contrary to the established view, futures prices significantly improve upon the accuracy of monthly no-change forecasts. This results from two innovations. First, we document that independent of the construction of futures-based forecasts, longer-horizon futures prices have become better predictors of crude oil spot prices since the mid-2000s. Second, we show that futures curves constructed using end-of-month prices instead of average prices have consistently been able to generate large accuracy-improvements for short-horizon forecasts of average prices. These findings are remarkably robust and apply to all major crude oil benchmarks.

Suggested Citation

  • Reinhard Ellwanger and Stephen Snudden, 2023. "Futures Prices are Useful Predictors of the Spot Price of Crude Oil," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    • Handle: RePEc:aen:journl:ej44-4-snudden
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    Cited by:

    1. Reinhard Ellwanger, Stephen Snudden, Lenin Arango-Castillo, 2023. "Seize the Last Day: Period-End-Point Sampling for Forecasts of Temporally Aggregated Data," LCERPA Working Papers bm0142, Laurier Centre for Economic Research and Policy Analysis.
    2. Tao Xiong & Miao Li & Jia Cao, 2023. "Do Futures Prices Help Forecast Spot Prices? Evidence from China’s New Live Hog Futures," Agriculture, MDPI, vol. 13(9), pages 1-16, August.

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    JEL classification:

    • F0 - International Economics - - General

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