On the predictive accuracy of crude oil futures prices

This paper evaluates the predictive accuracy of 1-, 3-, 6-, 9-, and 12-month ahead crude oil futures prices for 1991.01-2001.12. In addition to testing for unbiasedness, a naive forecasting model is constructed to generate comparable forecasts, as benchmarks. Our empirical findings reveal that futures prices and naive forecasts are unbiased at all forecast horizons. However, the 1-, and 12-month ahead futures prices are the only forecasts outperforming the naive, suggesting their potential usefulness in policy making. Continuing political instability of the Middle East and the inability of OPEC to offset market sentiment, among other factors, may in the future adversely affect the predictive accuracy of the 1- and 12-month ahead futures prices. Accordingly, caution must be exercised when utilizing such prices as a forecasting tool. (C) 2003 Elsevier Science Ltd. All rights reserved.