Understanding psychological barriers in crude oil prices: The role of geopolitical tensions beyond policy uncertainty

This paper investigates the presence of psychological price barriers in crude oil prices and their interaction with geopolitical risk ( gpr ) and economic policy uncertainty ( epu ), using daily data for Brent and WTI crude oils from 1987 to 2025. While our analysis yields mixed evidence in support of psychological barriers, both Brent and WTI tens digit prices are characterised by results that are consistent with clustering away from psychological barriers. Our research provides novel insights in terms of uncovering an asymmetric relationship between geopolitical risk and the likelihood of prices encountering these barriers. To address a high-dimensional setting with numerous lags, the One Covariate at a Time Multiple Testing (OCMT) approach is employed for variable selection. We find that when gpr is heightened, there is more likelihood of crude oil prices encountering psychological price barriers. When gpr is subdued, decreases in geopolitical risk can be more impactful for downward breaches of such barriers. In contrast, epu does not exhibit any explanatory power regarding the likelihood of prices encountering psychological barriers.