Critical Improvements in Oil Market Modeling

The complexity of the world oil market has increased dramatically in recent years and new approaches are needed to understand, model, and forecast oil prices today. Many models have been explored and most of the papers and modeling projects referenced in this paper identify their own short-comings and opportunities for future improvements. The reason to choose those models is they have been largely used due to their quality and contribution to their targeted objectives. Rather, this paper will focus on what remains to be done despite of the quality of research reviewed. Considering the complexity of the oil market including the roles of market actors, technical and engineering challenges, environmental issues, and political interests, the modeling challenge would be difficult enough in static conditions. In fact, the oil market is a constantly evolving system requiring the development of new theories and methods to address the questions of the day. The spirit of this paper is to present constructive approaches for future work rather than to provide formal assessment of models on any particular metric