Modeling and forecasting implied long term oil price with ARIMA model

The oil and gas play an important role in the global energy market and are considered one of the most fundamental traded products in the world. Oil and gas companies continuously seek to expand their asset portfolios and secure future energy supplies through strategic merger and acquisition (M&A). Considering the fact that the breakeven oil price is crucial for the operation performance and can impact the M&A decisions, this paper estimates the implied long term oil price (ILTOP) in the process of M&A for oil and gas companies. Based on the monthly data during March 2005-May 2023, this paper presented the trends of ILTOP and forecasted the short-term future price of ILTOP using the Autoregressive Integrated Moving Average (ARIMA) model. The results show that ARIMA(3,1,4) is appropriate for ILTOP within the specific time horizon. In addition, future ILTOP is estimated between 57~59 $/bbl in the following months. These findings can provide references for oil and gas companies to make investment and management decisions.