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Crude oil and motor fuel: Fair price revisited

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  • Ivan O. Kitov
  • Oleg I. Kitov

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.

Suggested Citation

  • Ivan O. Kitov & Oleg I. Kitov, 2010. "Crude oil and motor fuel: Fair price revisited," Papers 1005.0051, arXiv.org.
    • Handle: RePEc:arx:papers:1005.0051
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    References listed on IDEAS

    as
    1. Kitov, Ivan & Kitov, Oleg, 2009. "A fair price for motor fuel in the United States," MPRA Paper 15039, University Library of Munich, Germany.
    2. Kitov, Ivan & Kitov, Oleg, 2009. "Sustainable trends in producer price indices," MPRA Paper 15194, University Library of Munich, Germany.
    3. Ivan O. Kitov & Oleg I. Kitov, 2008. "Long-Term Linear Trends In Consumer Price Indices," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 3(2(4)_Summ).
    4. Kitov, Ivan, 2009. "Predicting gold ores price," MPRA Paper 15873, University Library of Munich, Germany.
    5. Kitov, Ivan & Kitov, Oleg, 2009. "PPI of durable and nondurable goods: 1985-2016," MPRA Paper 15874, University Library of Munich, Germany.
    6. Kitov, Ivan, 2009. "Predicting the price index for jewelry and jewelry products: 2009 to 2016," MPRA Paper 15875, University Library of Munich, Germany.
    7. Kitov, Ivan, 2009. "Apples and oranges: relative growth rate of consumer price indices," MPRA Paper 13587, University Library of Munich, Germany.
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    Citations

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    Cited by:

    1. Kitov, Ivan, 2015. "Modeling the price of crude oil and motor fuel: a five-year revision," MPRA Paper 62338, University Library of Munich, Germany.
    2. V. V. Kossov, 2016. "A medium-term forecast of crude oil buyers’ prices," Studies on Russian Economic Development, Springer, vol. 27(6), pages 656-663, November.

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    More about this item

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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