Forecasting Gas Prices Rory Hofstatter Shu-He Lin Chia-Jung Liu Claudia Muyle Sooyeon Shin Adam Sutton.

Forecasting Gas Prices

Rory Hofstatter Shu-He Lin

Chia-Jung Liu Claudia Muyle

Sooyeon Shin Adam Sutton

INTRODUCTIONGas prices and common commodity pricing

Gas prices peaked at $4.00 per gallon in 2008

Recession and gas prices

DATA COLLECTION RAW DATA

Weekly Regular Gas Prices

August 1990 – May 2010

1026 Observations

Data obtained from FRED

DATA VERIFICATION RAW DATARandom Walk – Needs to be Pre-Whitened

0

1

2

3

4

5

8/20/90 6/20/94 4/20/98 2/18/02 12/19/05 10/19/09

PRICEPERGAL

DATA VERIFICATION RAW DATADescriptive Statistics – Histogram (Multi-Peaked

and Positively Skewed)

DATA VERIFICATION RAW DATADescriptive Statistics

– Correlogram

Slow decay in ACF and a

large spike at lag 1 in PACF

DATA VERIFICATION RAW DATAUnit Root Test

DATA VERIFICATION DATA TRANSFORMATION

Raw Data

Logarithmic Transformation

Seasonal Difference

First Difference of the Seasonal Difference of Log Price

(DSLNPRICEPGAL)

DATA VERIFICATION DSLNPRICEPGALDescriptive Statistics –Line Graph

DATA VERIFICATION DSLNPRICEPGALDescriptive Statistics – Histogram

DATA VERIFICATION DSLNPRICEPGALDescriptive Statistics

– Correlogram

DATA VERIFICATION DSLNPRICEPGALUnit Root Test

MODEL SPECIFICATIONARMA (1,1) –Estimation Output

MODEL SPECIFICATIONARMA (1,1)

– Correlogram of Residuals

Some Structure

Still Remaining

MODEL SPECIFICATIONARMA (1,2) –Estimation Output

MODEL SPECIFICATIONARMA (1,2)

– Correlogram

Most of the structure

now removed but some

still remaining

MODEL SPECIFICATION

More Models Tried:

ARMA (1,3)

ARMA (1,4)

ARMA (2,4)

ARMA (2,5)

Best Fitting Model: ARMA (2,5)

MODEL SPECIFICATION ARMA (2,5)

–Estimation Output

MODEL SPECIFICATIONARMA (2,5) – Actual, Fitted, Residual Graph

MODEL SPECIFICATIONARMA (2,5)

– Correlogram

MODEL VERIFICATIONTo test the accuracy of the forecasting model,

compare forecasted with Actual for last 26 weeks

FORECASTINGForecast for 26 weeks into the future difference

FORECASTINGForecast for 26 weeks into the future difference

Zoomed

FORECASTINGRecoloring the Forecast:

Workfile Window: Sample: 1026 1026

Workfile Window: GENR: slnpricepgalf = slnpricepgal

Workfile Window: Sample: 1 1052

Workfile Window: GENR: slnpricepgalf = slnpricepgal(-1) + dslnpricepgalf

Workfile Window: Sample: 1 1052

Workfile Window: GENR: lnpricepgalf = lnpricepgal(-52) + slnpricepgalf

Workfile Window: GENR: pricepgalf = exp(lnpricepgalf)

Workfile Window: GENR: ppgsef = exp(fdslnsef)

FORECASTINGForecast for 26 weeks into the future – gas price

per gallon

FORECASTINGForecast for 26 weeks into the future – gas price

per gallon (Zoomed)

CONCLUSION

Regular gas price is predicted to stay stable around $2.80 per gallon for the next 16 weeks then drop down in price to approximately $2.20 per gallon.

Source: economistmom.com