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What can the oil futures curve tell us about the outlook for oil prices?

Large movements in the oil price have had significant effects on UK CPI inflation over the past few years. In order to produce an inflation forecast, it is necessary to assume a path for oil and other commodity prices. The Monetary Policy Committee assumes that oil prices follow the path given by market futures prices when deciding their central projections for CPI inflation and GDP growth. This article considers arguments for and against using the futures curve as an assumed path and describes some of the other indicators used by the Committee in assessing the outlook for oil prices.

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Article provided by Bank of England in its journal Bank of England Quarterly Bulletin.

Volume (Year): 52 (2012)
Issue (Month): 1 ()
Pages: 39-47

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Handle: RePEc:boe:qbullt:0069
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  1. Trevor A. Reeve & Robert J. Vigfusson, 2011. "Evaluating the forecasting performance of commodity futures prices," International Finance Discussion Papers 1025, Board of Governors of the Federal Reserve System (U.S.).
  2. Ron Alquist & Lutz Kilian & Robert J. Vigfusson, 2011. "Forecasting the Price of Oil," Staff Working Papers 11-15, Bank of Canada.
  3. Tao Wu & Andrew H. McCallum, 2005. "Do oil futures prices help predict future oil prices?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue dec30.
  4. Gary Gorton & Fumio Hayashi & K. Rouwenhorst, 2007. "The Fundamentals of Commodity Futures Returns," Yale School of Management Working Papers amz2605, Yale School of Management, revised 01 Oct 2008.
  5. James D. Hamilton, 2009. "Causes and Consequences of the Oil Shock of 2007-08," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 40(1 (Spring), pages 215-283.
  6. Saporta, Victoria & Trott, Matt & Tudela, Merxe, 2009. "What can be said about the rise and fall in oil prices?," Bank of England Quarterly Bulletin, Bank of England, vol. 49(3), pages 215-225.
  7. Pagano, Patrizio & Pisani, Massimiliano, 2009. "Risk-adjusted forecasts of oil prices," Working Paper Series 0999, European Central Bank.
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