Oil Prices And Oil Futures

As of March 7th:

Figure 1: Oil price, monthly average of daily spot, $/bbl (blue), spot close on 3/5 (blue square), and futures price (red +). Source: FRED, Bloomberg, NYMEX via ino.com.

See James Hamilton (Jim) on contango and backwardation, which cites Chinn et al. (2005) (an extended version published as Chinn and Coibion (2014).

Should we place much faith in futures? Chinn and Coibion evaluate the relative performance of futures, random walk and ARIMA models for several commodities, including petroleum.

Source: Chinn and Coibion (2014).

In sample, oil futures do pretty well on direction-of-change metrics. Out of sample (2003-12), futures do as well as a random walk.

Disclosure: None.

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