Real Oil Price Forecasting : Gains and Weaknesses of Text Data

This paper develops alternative text-based indexes assessing human sentiment and economic uncertainty in the oil market. The text analysis includes the titles and full articles of 138,797 oil related news items which featured in The Financial Times, Thompson-Reuters and The Independent from 1982M1 to 2021M11. Empirical experiments show that, while sentiment indicators are prone to react to economic and geopolitical events affecting oil prices, uncertainty measures may hide structural weaknesses, which create problems when alternative measures of real oil prices are forecast. This work results in a new text-based index that significantly improves the real oil price point forecasts, especially in periods of financial stress, when forecasting matters the most