Can Crude Oil Futures Predict Spot Retail Unleaded Gasoline Prices?

Journal of Business Strategies, 26(2), 115-135, 2009

26 Pages Posted: 5 Sep 2012 Last revised: 3 Sep 2017

See all articles by Vance Ginn

Vance Ginn

Texas Public Policy Foundation

Ronald D. Gilbert

Texas Tech University

Date Written: September 4, 2012

Abstract

The motivation for this paper began with casual empiricisms regarding the brief distributed lag of retail gasoline prices behind crude oil futures. We developed a model consistent with our hypothesis and tested it with econometrics using statistical data that include the sharp decrease in crude oil price futures in late summer 2008. We found that our model is a consistent and efficient estimator of the actual gasoline prices over most of our sample period. However, random shocks to gasoline prices, like Hurricane Ike in 2008, cause the model to have problems accurately predicting gas prices. We conclude that our estimated model and simulations provide reasonable support for our hypothesis that crude oil price futures can predict spot retail unleaded gasoline prices.

Keywords: Crude Oil Futures, Retail Gasoline Price, Forecasting

JEL Classification: E17, Q40

Suggested Citation

Ginn, Vance and Gilbert, Ronald D., Can Crude Oil Futures Predict Spot Retail Unleaded Gasoline Prices? (September 4, 2012). Journal of Business Strategies, 26(2), 115-135, 2009. Available at SSRN: https://ssrn.com/abstract=2141582

Vance Ginn (Contact Author)

Texas Public Policy Foundation ( email )

901 Congress Avenue
Austin, TX 78701
United States
7134785255 (Phone)

HOME PAGE: http://www.texaspolicy.com/experts/detail/vance-ginn

Ronald D. Gilbert

Texas Tech University ( email )

2500 Broadway
Lubbock, TX 79409
United States

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