Subject. The article considers the influence of geopolitical factors on the formation of market expectations regarding global oil demand. Objectives. The study aims at quantitative verification of hypotheses about the influence of political factors, in particular, geopolitical instability, on the formation of market expectations regarding oil demand. Methods. The research rests on general scientific and special economic and mathematical methods. Results. We built a linear regression model that includes the geopolitical risk index (GPR), inflation rate, gross domestic product, and Brent and WTI oil prices. To identify possible structural changes, the model was evaluated separately on two time subsamples: before and after 2010. The sliding regression method helped estimate time variability of coefficient for GPR and record the increased influence of political factors on market expectations. We developed a predictive error model, in which absolute deviations from the baseline forecast are explained by the level of geopolitical instability. This enabled to quantify the impact of political shocks on reducing the accuracy of predictions. The ARCH LM test at the final stage of the analysis confirmed the presence of heteroscedasticity in the remnants of the model during periods of increasing geopolitical risks. The results show that political factors, even in the absence of direct dependence on the level of consumption, systematically worsen the accuracy of forecasts. Conclusions. Geopolitical factor is a new challenge for traditional forecasting, requiring the adaptation of models, taking into account uncertainty and possible application of new methodological approaches, including scenario analysis, neural network models, or stress testing.
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