An Explainable Machine Learning Framework for Forecasting Crude Oil Price during the COVID-19 Pandemic

Abstract

Financial institutions, investors, central banks and relevant corporations need an efficient and reliable forecasting approach for determining the future of crude oil price in an effort to reach optimal decisions under market volatility. This paper presents an innovative research framework for precisely predicting crude oil price movements and interpreting the predictions. First, it compares six advanced machine learning (ML) models, including two state-of-the-art methods: extreme gradient boosting (XGB) and the light gradient boosting machine (LGBM). Second, it selects novel data, including user search big data, digital currencies and data on the COVID-19 epidemic. The empirical results suggest that LGBM outperforms other alternative ML models. Finally, it proposes an interpretable framework for facilitating decision making to interpret the prediction results of complex ML models and for verifying the importance of various features affecting crude oil price. The results of this paper provide practical guidance for participants in the crude oil market.