A monthly crude oil spot price forecasting model using relative inventories

This paper presents a short-term forecasting model of monthly West Texas Intermediate crude oil spot prices using readily available OECD industrial petroleum inventory levels. The model provides good in-sample and out-of-sample dynamic forecasts for the post-Gulf War time period. In-sample and out-of-sample forecasts from the model are compared with those derived from other models. The model is intended for the practicing forecaster and designed to be simple enough to implement easily in a spreadsheet or other software package, with the variables easy to update. The simplicity and ease of updating make this model attractive for investigating various scenarios to see the impacts that market changes can have on monthly crude oil spot prices, if inventories, production, imports, or demand change. Finally, the model structure can easily be updated periodically should there be a fundamental market change or a shift in the normal level of inventories.