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Modelling and Prediction of Oil Price Fluctuations of the OPEC Reference Basket (ORB)

Abstract

The oil price plays a fundamental role in the global economy, especially in the economy of oil-exporting countries. The oil price fluctuations in the OPEC oil exporting countries have been considerable due to a substantial share of oil revenues in their budgets. In this paper, with the use of autoregressive conditional heteroskedasticity models (the ARCH family), we try to present an appropriate model for the crude oil price fluctuations of the OPEC Reference Basket (ORB) from the monthly data in the period from 1983 to 2015. The study results suggest that there is a pattern of cluster fluctuations in the oil price series; according to the data, the autoregressive conditional heteroskedasticity model; GARCH (1, 1), is more consistent with reality, and is the best model describing the fluctuations. According to the price forecast for the OPEC basket crude oil based on the above model, oil price fluctuations are not significant, and oil price will have very little fluctuations until the end of 2016.

Keywords

ORB crude oil prices; SARIMA; ARCH models; Forecasting.

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