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

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

3. Weekly Regular Gas Prices August 1990 – May 2010 1026 Observations Data obtained from FRED

4. Random Walk – Needs to be Pre-Whitened

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

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

7. Unit Root Test

8. 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)

9. Descriptive Statistics –Line Graph

10. Descriptive Statistics – Histogram

11. Descriptive Statistics – Correlogram – Correlogram

12. Unit Root Test

13. ARMA (1,1) –Estimation Output

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

15. ARMA (1,2) –Estimation Output

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

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

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

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

20. ARMA (2,5) – Correlogram – Correlogram

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

22. Forecast for 26 weeks into the future difference

23. Zoomed Zoomed

24. Recoloring 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)

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

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

27. 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.

28. Source: economistmom.com