ISBN No.

:978-967-2171-30-0

UTM Computing Proceedings

Innovations in Computing Technology and Applications
Volume: 3 | Year: 2018 | ISBN No. :978-967-2171-30-0

Comparison of Artificial Neural Network

(ANN) and Autoregressive Integrated Moving
Average (ARIMA) Models for WTI Crude
Oil Price Forecasting

Siti Farahzalina Yusof, Ruhaidah Samsudin

School of Computing, Faculty of Engineering,
Universiti Teknologi Malaysia,
81310 Johor Bahru, Johor, Malaysia.
farahzalinayusof@gmail.com, ruhaidah@utm.my

Abstract—Crude oil is one of the primary key that I. INTRODUCTION

drives the economic development of a country. The
prices of crude oil are crucial aspect to be paid
attention as it is proven in past researches to have a
direct impact on the global economy. Specifically, the
West Texas Intermediate (WTI) crude oil price is the
most renowned benchmark price in oil pricing as it
affects other commodities prices and is vastly used as
the basis in formulating the price of other crude oils.
Thus, to forecast the price of WTI crude oil is a tedious
matter as the results may be treated as a precaution or
a warning in making a business strategy of a country.
In this research, The Artificial Neural Network (ANN)
and Autoregressive Integrated Moving Average
(ARIMA) models are used to forecast the future price
of WTI crude oil. The same dataset by five-years of
observations of WTI Daily Spot Price are used the
forecasting of both models. A comparative analysis
between ANN and ARIMA models are recorded to
signify which one of the techniques yield a better
forecast performance by comparing the value of MAE,
MSE, and MAPE. Specifically, the results from the
comparative analysis of both models indicates that
ANN performs better in forecasting compared to
ARIMA. The accuracy results from ANN model are
0.504, 0.588, and 1.203 for MSE, MAE, and MAPE
respectively which pointed out a good accuracy as the
values are lower than of the ARIMA model.
Keywords: Artificial Neural Network (ANN),
Autoregressive Integrated Moving Average (ARIMA),
West Texas Intermediate (WTI)
In the field of economy, forecasting crude oil
price has been an imperative activity for economist
across worldwide [1]. In general, to forecast crude oil
price is to have a sense of control on what might
happen to the global economy. While ruminating on
decision-making, forecasted crude oil price result
may help in achieving a good decision in meeting
certain goals and objectives that a country needs to
manage its own direction of economic growth. This is
because the prices of crude oil have the potential to
directly affect the economies in three dominant
channels: Firstly, fluctuation in crude oil prices have
a great impact on inflation, by way of variance in
production cost which leads to the shifting in the
supply curve. Secondly, changes in crude oil prices
give a cogent effect on the exchange rates through the
balance of payments primarily for oil-importing
countries. Finally, changes in crude oil price
influences the value of household’s total [2].
A number of papers have documented forecasting
models for crude oil price using various techniques.
For instance, a study applied Bayesian model to
forecast the long term of crude oil prices using prior
information to model the approach [3]. Brent crude
oil price was also forecasted using a combination of
four models [4]. The papers however did not
document a forecasting model for West Texas
Intermediate (WTI) crude oil specifically. Thus, this

1

paper narrowed the scope of the forecasting activity
by specifically forecasting the WTI crude oil price.
WTI crude oil is one of the oil pricing benchmark that
acts as a reference price for sellers and buyers of
crude oil, other than Brent and Dubai crude oils
which are equally famous as WTI in oil market. WTI
crude oil originates from the North America which is
known as the highest quality crude oil. The market of
WTI crude oil is only within the United States region,
not as vast as the market of Brent and Dubai crude
oils. The main reason why WTI crude oil is chosen to
be the focus of this research is because it is vastly
used as the essence of plenty crude oil price formulae.
Numerous researchers also used WTI crude oil rather
than using Brent and Dubai crude oil as the centre of
their topics. The abundant attention received was due
to the significant role that WTI crude oil plays in
pricing agreement and benchmark pricing from its
interaction with other crude oils. Benchmark crude oil
is important for the purpose of pricing the various
types of crude oil manufactured across worldwide.
Although it is not the most used oil, the fluctuation of
WTI crude oil price directly gives negative impacts to
the global economy as well as the community in
concern of it.
This research aims to develop an accurate
forecasting model to get the finest prediction result.
Without an appropriate utilization of fitting models in
accordance to the data behaviours, the forecast result
may lead to a dreadful and ruinous decision which
may yields to a catastrophic effect in the particular
sectors. As such, Artificial Neural Network (ANN)
and Autoregressive Integrated Moving Average
(ARIMA) models are used to measure which of it can
give a high degree in accuracy result of forecasting.
Large amount of data as input forecasting systems is
crucial in attaining authentic and requisite estimates
[5]. Based on this statement, the selection of ANN
and ARIMA as the forecasting models is genuine.
ANN and ARIMA models had also achieved an
equally successful applications in their own domain
[6]. However, neither of them is universal model to fit
for all circumstances.
II. RELATED WORKS
In this research, two types of forecasting models
are applied. The models are ANN and ARIMA which
are commonly used in the area of forecasting. Both
models are time-series based. The related works of
the models are discussed profoundly in the sections
below.
A. ANN
ANN is not a foreign model for forecasting
activity. A lot of previous researches utilized ANN as
the method for forecasting where it has been applied
in various types of field. One of the most recent
research regarding ANN was the forecasting on
dissolved oxygen in a river whereby four models of
ANN being applied namely the Multilayer Perceptron
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Neural Networks(MPNN), Multivariate Linear
Regression(MLR), Radial Basis Function Neural
Networks(RBFNN), and General Regression Neural
Networks(GRNN)[7]. Based on the research, it was
concluded that GRNN and RBFNN were the best
performing models outperformed the MLPNN due to
their fast computation that displayed a big difference
compared to MLPNN which decreased in speed by its
double-iteration learning strategy. Meanwhile, MLR
model was observed as the worst performing model
as its performance was in the lowest rank compared
to the other three ANN models [7].
Apart from that, ANN was also used in the
prediction of gross domestic product (GDP) and
Herfindahl-Hirschman Index (HHI) in which the
network of ANN was trained with back propagation
(BP) learning algorithm and extreme learning
machine (ELM)[8]. The research concluded that
ANN network works better with ELM algorithm as
the degree of accuracy is higher than of the BP
algorithm in overcoming the high nonlinearity of
GDP and HHI predictions. Referring to the past
researches that applied ANN in different field other
than crude oil price forecasting, it is observed that the
accuracy of ANN may differ depending on the ANN
model used and the data training algorithm applied.
For cases of crude oil price forecasting using
ANN, it is said that ANN is superior and yields a
statistically notable forecast compared to linear
models such as ARMA and GARCH[9]. This is
because the results of conducting several
econometrical and statistical tests led to a conclusion
that the future prices time series is nonlinear which
made ANN a better model for forecasting crude oil
price. The results however being argued as raw input
data were used and the network were trained using
rather old information[10]. Past researches also
utilized hybrid model to forecast crude oil price
whereby the ANN being hybridized with other
models to improve the performance of classical
forecasting models in terms of precision and
accuracy. ANN-GARCH models research on crude
oil price volatility resulted in improvement by 30%
accuracy compared to the classical GARCH model
result[11].
Based on all the researches mentioned above,
ANN may yield different results depending on the
selection of input feature, architecture of ANN and
the parameter setting. Therefore, to achieve a high
degree of accuracy in forecasting, a proper
consideration regarding the modelling issue of ANN
should be given enough attention. Even though ANN
was said to be reliable for nonlinearity complex, the
only issue with the model is the fact that there are no
guidelines, and thus some things should be done
through experimentation or trial and error[12].
Despite that, the accuracy of prediction relies heavily
on the issues mentioned above. Thus, according to
[12], forecasting using ANN is more art than science.

B. ARIMA
Known as the Box-Jenkins model, ARIMA has
long been enjoying the rewarding applications in
forecasting areas[13]. Various area such as social,
economic, engineering, and foreign exchange have
been using ARIMA as the forecasting model. In fact,
the application of ARIMA models in forecasting
commodity prices such as natural gas and crude oil is
not a new thing[14]. In particular, ARIMA had also
been utilized in forecasting electricity prices of
mainland Spain and California markets. The study
used set of data from three non-consecutive week
electricity consumption to predict the hourly prices of
electricity in the mainland Spain and California.
Different model of ARIMA were applied in the Spain
and California respectively. Based on the study, it
was concluded that the result of forecast was
generated faster in California than in the Spain due to
the difference in the electricity prices volatility in
Spain and California respectively[14].
There were also a lot of other researches which
focuses on forecasting activity that applied ARIMA
models. For instance, [15] utilized ARIMA model to
forecast wind speed using time-series data. The study
presents the regression analysis and the model
validation process which is based in real-life data. At
the end of the study, the authors concluded that
ARIMA model is best suited to forecast wind speed
for short time intervals compared to back-propagation
neural network. [16]demonstrated the seasonal
ARIMA model for monthly peak-load demand data
forecasting of a town in Northern Iraq: Sulaimany
Governate. The results obtained 1.235 of mean
absolute percentage error (MAPE) which is a
particularly good result.
On top of that, several past studies also used
ARIMA to make comparison of forecast results
alongside with other forecasting models. [17] in their
study used wavelet ARIMA model to forecast the
temperature in north eastern Bangladesh and
compared the result with of the wavelet ANN model.
The results from the study indicated that wavelet
ARIMA model is more suited to be used as
temperature predictor than wavelet ANN model due
to the large temperature variation in the region of
Bangladesh. On 2016, ARIMA and GM(1,1) models
were used to forecast the consumption of energy in
China[18]. The study found that the results varies
following the requirements. Through comparison, it is
discovered that the ARIMA model responded less to
the fluctuation due its nature which is bounded by the
long-term trend. The GM(1,1) model however shows
a higher response due to the usage of the latest four
data. At the end of the study, the authors proposed a
hybrid approach of ARIMA and GM(1,1) models to
improve the rather opposite statistical sense of both
models.
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ISBN No. :978-967-2171-30-0
To sum it up, ARIMA models may not be fitted as
forecasting model for some time-series data due to its
limitation of long-term trend boundary. However,
ARIMA do gives an accurate forecast results for short
time period as long as more than 50 data presents[13].
Box and Jenkins in their empirical research also
supported the statement as they found that ARIMA is
a proper way to forecast short-term time series data.
The nature of the time-series data should be taken
into account as well. If the degree of volatility of the
data is high, probability of less accurate forecast
result to be obtained may exist. In short, to forecast
using ARIMA model is to find the exact model
depending on the characteristic of time-series data for
a satisfying result.
III. METHODOLOGY
Research methodology is the systematic plan that
is crucial for conducting a research. A systematic plan
aims to solve a problem by analysing the principle of
methods, techniques and algorithms used. A good
methodology will provide more details explanation
on how the research are carry out and ensure that the
objectives of research are achieved. In this chapter,
research method and process will be discussed to
produce good results of the research project. There
are two techniques that are used in this research
which are Artificial Neural Network (ANN) and
Auto-regressive Integrated Moving Average
techniques. This research project is divided into few
parts, which are Problem Formulation, Dataset
Collection, Development of ANN Model,
Development of ARIMA model, Validation and
Evaluation of the model as well as the conclusion and
report.
The development of ANN is implemented using
MATLAB. The ANN model developed for this
research consisted of three layers: input layer, hidden
layer, and output layer. To train the network, the
backpropagation is used following its popularity for
being a reliable technique in the field of forecasting
[9]. As for the hidden nodes selection, the number is
determined using the practical guidelines used by
previous researchers which are 2n+1, 2n, n, and n/2
[19]. On the hand, the ARIMA model is developed
using R. Following the conventional Box-Jenkins
methodology, the ARIMA is developed in four
essential steps which are model identification,
parameter estimation, diagnostic checking, and model
utilization where the forecasting process takes place
[20]. Using the same dataset of WTI Daily Spot Price
from 2013 to 2017 collections, the performance of
both models is measured using MSE, MAE, and
MAPE due to its accuracy in error calculation
[21].Figure 1 is the simple flowchart of the research
framework.
 ISBN No. :978-967-2171-30-0

a better result compared to the ARIMA model with

1.245% MAPE for training data and 1.203% MAPE
Problem Formulation for testing data. The low values of performance
measurement indicated that the model is the best
model for forecasting purposes.
Table 1.Best ANN Structure of WTI Crude Oil Price Forecasting

Training Testing
Dataset Collection ANN
Structure MA MAPE MA MAPE
MSE MSE
E % E %
12X5X 1.01 0.74 0.50 0.58
1.245 1.203
1 6 2 4 8

Development of ANN Model Table 2. Results of performance measurement for

ARIMA (0, 1, 1) Model

Training Testing
ARIMA
Model MSE MAE MAPE% MSE MAE MAPE%
(0, 1, 1) 1.692 0.991 1.621 0.844 0.710 1.463
Development of ARIMA Model
Table 3.Comparison of Best Results for Each Model

Training Testing
Model
MSE MAE MAPE% MSE MAE MAPE%
Validation and Evaluation of ANN and
ARIMA Models ANN 1.016 0.742 1.245 0.504 0.588 1.203
ARIMA 1.692 0.991 1.621 0.844 0.710 1.463

Based on Table 3, it can be clearly observed that

Conclusion and Report
Figure 1. Research framework
IV. RESULT
In this research, the accuracy of both model is
compared using MSE, MAE, and MAPE. Low value
of performance measurement is indicated as a good
forecasting result. Before conducting the experiments,
the data is divided into 70% of training data to train
the network for modelling purpose and 30% of testing
data to evaluate the model. From the experiments of
ANN, the model with twelve input nodes, five hidden
nodes, and one output is selected as the best model
based on its low values of MSE, MAE, and MAPE.
As for ARIMA, the selected model is ARIMA(0,1,1)
which produced a good performance. Table 1 and 2
show the best performance of ANN and ARIMA
model based on the MSE, MAE, and MAPE of
training and testing data.
Table 3 tabulated the best results for WTI crude
oil price forecasting based on the two models. Based
on the Table 3, it is evident that ANN model yielded
the ANN model produced lower values of MSE,
MAE, and MAPE for the WTI Daily Spot Price
dataset compared to the ARIMA model. The
significant results of ANN model proved that the
lower the value of MSE, MAE, and MAPE, the
higher the accuracy of the prediction. Thus, it can be
concluded that ANN as the nonlinear forecasting
model has a higher predictive capability compared to
ARIMA model which is a linear forecasting model.
V. CONCLUSION
In conclusion, this research has developed ANN
and ARIMA models for WTI crude oil price
forecasting in order to improve the readily available
forecasting models. This research also conducted a
comparative analysis between ANN and ARIMA
models. The model of ANN was developed using
MATLAB whereas the model of ARIMA was
developed using R. The variations of tools being
used is to study how the tools work using the same
dataset as well as to gain various knowledge on
statistical tools. For the performance measurement,
MSE, MAE, and MAPE were selected to portray the
accuracy of both models. Referring to the analysed
results, it is proven that the ANN as a linear
forecasting model is a better technique in forecasting

4

as it managed to obtain a higher accuracy compared
to ARIMA as the linear forecasting model by
yielding the lowest value of MSE, MAE, and MAPE.
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