Petroleum Inventory Level: A Leading Indicator of Crude Oil Prices

Abstract

This paper proposes a short-term forecasting model of West Texas Intermediate (WTI) crude oil spot prices using United States petroleum inventory levels and the spread between front-month futures prices and back-month futures prices. Applying the model between January 2010 to January 2018, I find that the model outperforms a naïve forecasting model with a convincing margin. The model is based on readily available data, which makes the model useful for those who are interested in forecasting future oil prices or wanting to understand historical price fluctuations.