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Small Trends and Big Cycles in Crude Oil Prices

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  • Xiaoyi Mu and Haichun Ye

Abstract

We employ an unobserved components model to disentangle the long-term trend from cyclical movements in the price of internationally traded crude oil using data from 1861 to 2010. The in-sample estimation of the model identifies a deterministic quadratic trend and two types of cycles, with the short cycle having a period of 6 years and the long cycle of 29 years. Compared to the large amplitude of the cycles, the growth rate of the long-term trend is small. The out-of-sample forecasting performance of various competing models is compared to that of a "no change" random walk forecast. While the random walk forecast tends to be the most accurate at shorter horizons, it is outperformed by the trend-cycle models at horizons longer than one year. The results provide evidence of predictability in the price of crude oil at long horizons.

Suggested Citation

  • Xiaoyi Mu and Haichun Ye, 2015. "Small Trends and Big Cycles in Crude Oil Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
    • Handle: RePEc:aen:journl:ej36-1-03
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    Cited by:

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    2. Razek, Noha H.A. & Michieka, Nyakundi M., 2019. "OPEC and non-OPEC production, global demand, and the financialization of oil," Research in International Business and Finance, Elsevier, vol. 50(C), pages 201-225.
    3. Gil-Alana, Luis A. & Gupta, Rangan & Olubusoye, Olusanya E. & Yaya, OlaOluwa S., 2016. "Time series analysis of persistence in crude oil price volatility across bull and bear regimes," Energy, Elsevier, vol. 109(C), pages 29-37.
    4. Moreno, Manuel & Novales, Alfonso & Platania, Federico, 2019. "Long-term swings and seasonality in energy markets," European Journal of Operational Research, Elsevier, vol. 279(3), pages 1011-1023.
    5. Li, Wei & Lu, Can & Ding, Yi & Zhang, Yan-Wu, 2017. "The impacts of policy mix for resolving overcapacity in heavy chemical industry and operating national carbon emission trading market in China," Applied Energy, Elsevier, vol. 204(C), pages 509-524.
    6. Ding Chen & Umar Muhammad Gummi & Shanbing Lu & Adamu Hassan, 2024. "Oil price, economic policy uncertainty and food prices in oil-exporting and oil-importing developing economies," Economic Change and Restructuring, Springer, vol. 57(4), pages 1-22, August.
    7. Monge, Manuel & Gil-Alana, Luis A. & Pérez de Gracia, Fernando, 2017. "Crude oil price behaviour before and after military conflicts and geopolitical events," Energy, Elsevier, vol. 120(C), pages 79-91.

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