Do OPEC+ policies help predict the oil price: A novel news-based predictor

The OPEC+, composed of the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC oil-producing countries, exerts considerable influence over the global crude oil market. However, existing literature lacks a comprehensive application of this factor in oil price forecasting, primarily due to the complexity of measuring such policy evolutions. To address this research gap, this study develops a news-based OPEC+ policy index based on text mining methods for comprehensive analysis and forecasting of the oil price. First, by crawling and mining news headlines related to OPEC+ production decisions, a dynamic and high-frequency (weekly) OPEC+ policy index is established. Second, the linear and nonlinear relationship between the proposed OPEC+ policy index and the WTI crude oil futures price is thoroughly examined, assessing the potential predictive power of the index in explaining the movements of the crude oil price. Third, the forecasting efficacy of the constructed index on the oil price is rigorously evaluated across eight econometric and machine learning models. Key findings include: (1) The proposed weekly OPEC+ policy index demonstrates strong concordance with OPEC+ production change decisions, exhibiting notable peaks and troughs corresponding to OPEC+ Ministerial Meetings. (2) The relationship analysis demonstrates a strong linear and nonlinear association between the proposed OPEC+ policy index and the crude oil price. (3) For oil price prediction, models incorporating our proposed OPEC+ policy index demonstrate superior performance compared to models without this index. In particular, the index exhibits a more significant predictive effect within three-week forecasting horizons and performs exceptionally well during periods of pandemic and the Russia-Ukraine conflict. In addition, the OPEC+ policy index also exhibits a significant predictive effect on the daily crude oil price and natural gas price, further confirming the robust and powerful forecasting capability of this index within the energy system.