Quantification of market external factors for crude oil pricing

Abstract

Crude oil is known as one of the most important raw materials and energy sources for various industries. Due to this heightened value of crude oil, predicting oil price has been an important issue worldwide and it still is an on-going research issue. Oil price is influenced not only by market internal factors but also by external factors such as political conflicts and natural disasters. Since the external factors are qualitative that are difficult to quantify, most of current oil pricing models focus on the internal factors. This paper classifies the external factors into five different perspectives and divides these aspects into fourteen different factors. The rationale behind this approach is discussed. Then, quantification to grant certain weights on one of the external market factors is demonstrated by using the fuzzy concept and AHP (Analytic Hierarchy Process) method.