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A Short-Run Crude Oil Price Forecast Model with Ratchet Effect

  • Michael Ye

    ()

  • John Zyren
  • Carol Blumberg
  • Joanne Shore
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    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. Copyright International Atlantic Economic Society 2009

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    File URL: http://hdl.handle.net/10.1007/s11293-008-9158-2
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    Article provided by International Atlantic Economic Society in its journal Atlantic Economic Journal.

    Volume (Year): 37 (2009)
    Issue (Month): 1 (March)
    Pages: 37-50

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    Handle: RePEc:kap:atlecj:v:37:y:2009:i:1:p:37-50
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    1. Carol Dahl & Mine Yucel, 1991. "Testing Alternative Hypotheses of Oil Producer Behavior," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 117-138.
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    5. Stephen G. Powell, 1990. "The Target Capacity-Utilization Model of OPEC and the Dynamics of the World Oil Market," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 27-64.
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    8. Robert K. Kaufmann, Stephane Dees, Pavlos Karadeloglou and Marcelo Sanchez, 2004. "Does OPEC Matter? An Econometric Analysis of Oil Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 67-90.
    9. Michael Ye & John Zyren & Joanne Shore, 2006. "Short-Run Crude Oil Price and Surplus Production Capacity," International Advances in Economic Research, International Atlantic Economic Society, vol. 12(3), pages 390-394, August.
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