My model for forecasting oil prices has three top-level factors, represented graphically by arrows pointing up, down or sideways. An up arrow is colored green and points to higher oil prices. A down arrow is colored red and points to lower oil prices. The sideways arrow is colored grey and suggests that the relevant factor is neutral with respect to oil prices.
Of course, there are innumerable subfactors behind each of the main factors that form a lattice of cause and effect and that lend themselves to inferential methods. Still, the top-level “three arrows” predictive analytic model has served us well when it comes to oil prices.
The first factor is basic supply and demand. If global economies are growing strongly or if supply channels are jammed or restricted in any way, that arrow will be green, indicating higher prices. Conversely, in a global slowdown or a situation in which Russia, Saudi Arabia and the U.S. have their taps wide open, the arrow will be red, pointing toward lower prices.