Usefulness of the Forward Curve in Forecasting Oil Prices

Akira Yanagisawa
JEL codes: 
The Energy Data and Modelling Center Paper

When people analyse oil prices, the forward curve is often referred to as it reflects the average view among market participants. In this paper, to what extent the forward curve provides useful information in forecasting oil prices
was analysed quantitatively.

Although the usefulness of the forward curve is confirmed in forecasting oil prices, the effect in reducing forecast error is small. Additionally, the forward curve is actually useful for one week ahead and for one month ahead in daily and weekly forecasts, respectively. However, the forward curve is scarcely useful in long-term forecast.