Using derivatives to forecast oil scenarios
Generating probability-weighted oil price scenarios from traded derivatives prices can help risk managers in the industry
Most energy companies have official oil-price scenarios for decision-making purposes, and every interested executive has their favourite methodology for generating possible patterns of future spot prices.
These methodologies range from the qualitative, often outsourced, ‘expert assessments’ to semi-quantitative global oil market models and highly quantitative time series models; the latter extrapolating future price paths from past price behaviour and any number of non-price variables such as
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