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

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Presentation transcript:

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

Gas prices and common commodity pricing Gas prices peaked at $4.00 per gallon in 2008 Recession and gas prices

Weekly Regular Gas Prices August 1990 – May Observations Data obtained from FRED

Random Walk – Needs to be Pre-Whitened

Descriptive Statistics – Histogram (Multi-Peaked and Positively Skewed)

Descriptive Statistics – Correlogram – Correlogram Slow decay in ACF and a large spike at lag 1 in PACF large spike at lag 1 in PACF

Unit Root Test

Raw Data Logarithmic Transformation Seasonal Difference Seasonal Difference First Difference of the Seasonal Difference of Log Price (DSLNPRICEPGAL) First Difference of the Seasonal Difference of Log Price (DSLNPRICEPGAL)

Descriptive Statistics –Line Graph

Descriptive Statistics – Histogram

Descriptive Statistics – Correlogram – Correlogram

Unit Root Test

ARMA (1,1) –Estimation Output

ARMA (1,1) – Correlogram of Residuals – Correlogram of Residuals Some Structure Still Remaining Still Remaining

ARMA (1,2) –Estimation Output

ARMA (1,2) – Correlogram – Correlogram Most of the structure now removed but some now removed but some still remaining still remaining

More Models Tried: ARMA (1,3) ARMA (1,4) ARMA (2,4) ARMA (2,5) Best Fitting Model: ARMA (2,5)

ARMA (2,5) ARMA (2,5) –Estimation Output

ARMA (2,5) – Actual, Fitted, Residual Graph

ARMA (2,5) – Correlogram – Correlogram

To test the accuracy of the forecasting model, compare forecasted with Actual for last 26 weeks

Forecast for 26 weeks into the future difference

Zoomed Zoomed

Recoloring the Forecast: Workfile Window: Sample: Workfile Window: GENR: slnpricepgalf = slnpricepgal Workfile Window: Sample: Workfile Window: GENR: slnpricepgalf = slnpricepgal(-1) + dslnpricepgalf Workfile Window: Sample: Workfile Window: GENR: lnpricepgalf = lnpricepgal(-52) + slnpricepgalf Workfile Window: GENR: pricepgalf = exp(lnpricepgalf) Workfile Window: GENR: ppgsef = exp(fdslnsef)

Forecast for 26 weeks into the future – gas price per gallon

Forecast for 26 weeks into the future – gas price per gallon (Zoomed)

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