Quantifying the role of interest rates, the Dollar and Covid in oil prices

Which are the key determinants of oil prices, and what role do financial factors play in Brent price formation? This paper sheds a new light on these fundamental questions relying on a widely used machine learning technique (random forests, based on 1,000 regression trees). As the article shows, the use of this technique leads to very large gains in oil price forecasting performance. Besides strong forecasting performance, this powerful data-driven method also uncovers how economic and financial variables relate to oil prices. The benchmark model relies on 11 explanatory variables, which are firmly grounded on economic theory and measured on a daily frequency.