Predicting Oil and Gas Prices: 2009-2016

Jun. 24, 2009 5:57 AM ETOIL-OLD, XLE, USO, DBO, OIH33 Comments
Ivan Kitov profile picture
Ivan Kitov


In the United States, there exist robust linear trends in the differences between headline (or core) CPI and price indices for individual subcategories of goods and services such as energy, food, housing, etc.

Chiefly these differences can be represented by a piece-wise straight line. The periods of the transition from one trend to another are characterized by an elevated volatility. The difference between the core CPI and the price index for motor fuel can be also accurately approximated by several straight lines. In 2008, the negative trend was replaced with a positive one, and thus, a very high volatility in motor fuel price was observed, with an extension into 2009.

The change in the trend was accompanied by an “overshoot” in the price for motor oil, which dropped much lower than that expected from the new trend. Therefore, the difference has to return to the new positive trend in 2009. During the recovery period, the index for motor fuel will grow by 90 units or 50%. 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.

Therefore, the fair price is not a fixed value but a linear function of time.

Key words: CPI, motor fuel price, prediction, US

JEL Classification: E31, E37


The change in consumer prices is an eternal concern of any economy. In developed countries, the overall level of prices is the responsibility of central banks. Both high price inflation and deflation are considered by the mainstream economics as malicious phenomena which must be avoided by any means.

This is not a correct presumption, however, because inflation in advanced economies is driven only by the change in labor force [1-8]. There exists a

This article was written by

Ivan Kitov profile picture
I am a Doctor of Physics and Mathematics, Lead Researcher at the Institute for the Geospheres' Dynamics, Russian Academy of Sciences. In economics and finances, we apply strict quantitative methods, like those in classical mechanics, to predict the evolution of measured economic and financial variables: real GDP, inflation, unemployment, labor productivity, labor participation rate, personal income distribution, firm size distribution, S&P 500 returns, prices of commodities and shares of S&P 500 companies. We give only varified quantitative predictions - less words, more figures. Download original articles and working papers from Research Papers in Economics:

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