Does US-China trade war affect the Brent crude oil price? An ARIMAX forecasting approach.

Trade tension or trade war between the U.S. and China has had a significant impact on many sectors in the world. The business sector is one of them. Trade tension began on March 22^nd 2018, after U.S. President imposed a $50 billion import duty on Chinese goods entering the United States. In return, the Chinese central government also imposed import duty on more than 128 U.S. products. The import duty policy led to some decreases in productions and sales in China. As a result, the level of consumption and the demand for crude oil in China have declined. The fall in crude oil demand from the largest oil consumer, coupled with excess oil supply are estimated to produce volatility at the Brent crude oil price. Therefore, this study aims to model the monthly average of Brent crude oil price with the influence of trade war. The method used in this study is the Autoregressive Integrated Moving Average with Exogenous Variable (ARIMAX), where the exogenous variable is a dummy variable from the trade war between the U.S. and China. The results show that trade war has a significant effect on the monthly average of Brent crude oil price and the best model is ARIMAX(1,1,0), with a MAPE value of 13.6733 percent. [ABSTRACT FROM AUTHOR]