Monday, February 19, 2007

gas prices going up

As I said in my previous post ("tis the season") this morning, gas prices have begun to rise. How high will they go? I can't say exactly - but it is looking like $3.00 a gallon will be fairly common in many places in late April. After June begins, if there are no disasters, they should drop back 20 t0 30 cents from their high.

I said this morning, I am looking at adjusting my formula for forcasting next spring's gas prices. Right now, the following looks promising:

Take the price of a barrel of oil as it stands
throughout most of July, devide by 30.

If the price runs about $60 a barrel for most
of the month - that would be $2.00.

Then add the tax. This is what is written
on the pump. Around here it says something
like (and I haven't looked lately) 50 cents.

Add those two numbers to get the price to expect
next April. In the example that would be $2.50

Using that formula, the April prices for last April
and this April would have been $2.73 and $2.90

This seems like it might be a little low, so I may have to adjust it. I would like some commentary, as to what more to do to make these numbers more useful. Right now they are aimed at allowing, for instance, police departments and schools to forcast their fule budgets.



Aleksandr said...

I think that it does seem a little low, but probably by not more then fifty cents. Overall, it seems like a good model.

Now all that is left to see is how it holds up overtime and adjust from there.

TRex said...

You are right. I toyed around with the idea of using 27 as the devisor today.

In the end though - I want this formula to be useful, more than I want it to be accurate. And 25 is an easier number to use than 27. Also means people and institutions will over estimate a little more often than they under estimate.

(au-ppb/25)+.5 = ap-ppg it is.

That's, in english, August price per barrel devided by 25, plus 50 cents is the following April price per gallon.

That means last april would have forcast as $3.18 (26 cents high)
and this april forcast would be $3.38 - which we will have to see. (But I still expect to be just a tad high.)



Aleksandr said...

How about using the futures price of oil for the month instead of the actual price?

Futures prices for commodities have been shown to mirror future actual prices better then any models. If you use that number in your formula I think you would be able to get the kink out of it.