Template-Type: ReDIF-Article 1.0
Author-Name:  Reinhard Ellwanger and Stephen Snudden
Title:  Futures Prices are Useful Predictors of the Spot Price of Crude Oil
Classification-JEL: F0
Volume:  Volume 44
Issue:  Number 4
Year:  2023
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.
Handle: RePEc:aen:journl:ej44-4-Snudden
File-URL: http://www.iaee.org/en/publications/ejarticle.aspx?id=4028
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