Munich Personal RePEc Archive

CRUDE OIL AND MOTOR FUEL: FAIR PRICE REVISITED

Kitov, Ivan and Kitov, Oleg (2010): CRUDE OIL AND MOTOR FUEL: FAIR PRICE REVISITED.

[img]
Preview
PDF
MPRA_paper_21869.pdf

Download (90Kb) | Preview

Abstract

In April 2009, we introduced a model representing the evolution of motor fuel price (a subcategory of the consumer price index of transportation) relative to the overall CPI as a linear function of time. Under our framework, all price deviations from the linear trend are transient and the price must promptly return to the trend. Specifically, the model predicted that “the price for motor fuel in the US will also grow by 50% by the end of 2009. Oil price is expected to rise by ~50% as well, from its current value of ~$50 per barrel.” The behavior of actual price has shown that this prediction is accurate in both amplitude and trajectory shape. Hence, one can conclude that the concept of price decomposition into a short-term (oscillating) and long-term (linear trend) components is valid. According to the model, the price of motor fuel and crude oil will be falling to the level of $30 per barrel during the next 5 to 8 years.

UB_LMU-Logo
MPRA is a RePEc service hosted by
the Munich University Library in Germany.