Forecasting Oil Prices: How Does Technical Analysis Perform?

Forecasting oil prices has always been a challenge although the literature states that oil prices follow a random walk and is impossible to outperform the market as per the efficient market hypothesis (EMH). This paper aims to provide a new method to forecast oil prices which will prove to outperform not only the EMH, but also the long-only constant risk strategy. Technical analysis was used to carry this study and in particular the Moving Average (MA) crossover strategy of MA7 and MA9, where the data was extracted from the Bloomberg terminal. The results showed that the MA crossover strategy significantly outperformed both the buy and hold and the long-only constant risk strategies in forecasting oil prices, generating a spectacular yield of $248 \%$. This study took into consideration the roll yield and trading costs which were not always taken into account in previous studies. Furthermore, the study paved way to a new promising forecasting tool, which may also aid in trading oil futures, given the uncertainty which they possess.