Practical Spreadsheet Risk Modeling for Management

Time Series Models 191

make decisions based on the analysis of long time periods because the explo-

ration, drilling, and production process takes place over decades; therefore,

the recent changes cannot be given too much weight for future planning.

For this reason, most long-run models for predicting oil prices are based

on considerations of supply, demand, economic trends, new technologies,

population growth, etc. These models can (and should) be stochastic, often

utilizing techniques we have covered in other chapters (e.g., regression anal-

ysis). Rather than choosing between a short-run forecasting model, based on

time series analys ...