Technical Analysis of the Crude Oil Price Super-cycle Using Asymmetric Band-Pass Filtering

Purpose – International crude oil prices have shown the super-cycle which indicates dramatic upswings and downswings with multi decade periods. Crude oil prices have been stabilizing with downward trend since the second half of 2014, and the downward period of the current super-cycle has also been in progress. The purpose of this study is to identify when the downward trend would be converted to upturn and how strong the expected upswings would be. Research design, data and methodology - The crude oil price data used in the study was the monthly average of WTI, Brent, and Dubai oil prices. In addition to the historical prices, the forecasts of oil prices from 2020 to 2030 given by World Bank in October 2019 are added to the final data set to be analyzed. Thus the data of real oil prices run from 1960 to 2030 with 852 observations. The quantitative model applied in this study is the asymmetric band bass filtering which is one of time-series analysis with various advantages to identify a super-cycle after filtering out the cyclical components. Result - According to the results conducted by the asymmetric band pass filtering, the peak of the current super-cycle was formed in 2009 and the downward trend was analyzed to last until 2024. In other words the upcoming ascending phase of the cycle is expected to take place from 2024. However, the strength of the rise of oil price cycle is likely moderate compared to the previous rising periods. 3 reasons why the upward cycle will be moderate are development of extraction technique to stabilize the supply, demand substitution by eco-friendly automobiles, and higher competition among oil producing countries. Conclusion - It is shown that the current downward cycle will end in 2024. Because the upswing will be moderate in the upward phase of the upcoming super-cycle, it will help Korea’s economy in general by stabilizing inflation and the amount of imports. However, because oil producing countries, especially in Middle East, which highly rely on oil for their fiscal revenue may continue to suffer, there is a need to maintain a conservative view for the investment to these oil producing countries.