Has the Last Super Cycle in Crude Oil Price Ended? a Maximum Drawdown Approach Using Fractional Brownian Motion

Abstract

Identifying the start and end dates of past oil price super cycles attracts significant attention in the literature. However, there are limited attempts to construct a formal methodology for determining the duration and maximum drawdown of a typical oil price super cycle. This paper aims to fill this gap by identifying the pricing and duration properties of a super cycle using a fractional Brownian motion model (fBm). We calibrate the fBm and conduct simulations using data from January 1996 to September 2020. The simulation results indicate that the maximum drawdown is expected to last 124 months. This result implies that the last oil price super‐cycle ended in September 2018. In other words, our findings imply that oil prices are currently in a bull market. The findings carry significant policy implications for policymakers in both oil‐exporting and ‐importing countries, as well as financial market players.