Abstract
This paper explores the role of ocean temperature (OT) in forecasting crude oil prices. Global OT shows statistically and economically significant predictive power, with corresponding in-sample and out-of-sample R2s of 1.81 % and 1.74 %, respectively. Both southern and northern hemisphere OTs can predict future oil prices, and the former is more predictive. Compared to the Atlantic, OTs in the Indian and Pacific Oceans display considerable predictive gains. In addition, we find that OTs have stronger forecasting power for crude oil prices in the recent period, with the in-sample R2 of global OT for the recent decade's sample reaching as high as 2.74 %. Correspondingly, we find that OTs' predictive power in the full sample can be explained through two channels: market risk and investor attention. In the recent period, in addition to these two channels, OTs have also influenced crude oil prices through the oil fundamental channel.
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