Consistency in Forecasting Oil Prices and Gross Domestic Product

Open Access
Author:
Nichols, Thomas E
Area of Honors:
Economics
Degree:
Bachelor of Arts
Document Type:
Thesis
Thesis Supervisors:
  • Barry William Ickes, Thesis Supervisor
  • Russell Paul Chuderewicz, Honors Advisor
Keywords:
  • Crude Oil
  • Oil prices
  • Forecasting
  • GDP
  • Consistency
Abstract:
This paper explores the difficulties in creating accurate long- or medium- term crude oil price forecasts, specifically the challenge of creating consistent forecasts for both gross domestic product and crude oil prices. There is circularity between crude prices and GDP; crude prices affect GDP, while GDP of both importer and exporter nations affect the demand for and price of crude oil. This paper seeks to understand how the two variables interact, and whether or not forecasters have created consistent predictions based on the interaction. Before implementing empirical work, this paper discusses the other variables that influence oil prices and explores existing forecasting methodologies. The paper concludes that forecasters have not created consistent forecasts nor accounted for the complex relationship between GDP and crude prices.