1. Forecasting Crude Oil Prices By: Keith Cochran Joseph Singh Julio Urenda Dave White Justin Adams

2. Inquiry: Are Crude Oil Prices Destined to Rise this Summer?

3. Crude Oil Prices

5. Economic Background  Oil prices fall due to weak world demand (largely as a result of economic recession in the United States) and OPEC overproduction.  Oil prices decline sharply following the September 11, 2001 terrorist attacks, largely on increased fears of a worldwide economic downturn (and therefore lower oil demand).  Continued unrest in Venezuela and oil traders' anticipation of imminent military action in Iraq causes prices to rise in January and February, 2003.

6. Economic Significance U.S. highly dependent upon Oil. Price of Crude Oil has direct influence on Gasoline Prices. Higher Oil Prices can create Inflationary pressures/ higher prices of goods and services.

7. Data Weekly data beginning in January 1997 Data taken from Department of Energy Weekly data captures price fluctuations more accurately Representative of collective OPEC countries

8. Crude Oil Prices (1997-May, 2004)

9. First Dickey-Fuller Test ADF Test Statistic -0.94077 1% Critical Value* -3.4495 5% Critical Value -2.8693 10% Critical Value -2.5709  Accept null hypothesis that there is a unit root. The data is evolutionary.

10. Data now Stationary

11. Histogram

12. Second Dickey-Fuller Test ADF Test Statistic -8.05749 1% Critical Value* -3.4496 5% Critical Value -2.8694 10% Critical Value -2.5709  Reject null hypothesis that there is a unit root. The sample is now stationary.

13. Correlogram of dlncrude

14. ARMA Model

15. Residual Graph

16. Histogram

17. Correlogram of Residuals

18. Trace of Residual Squared

19. Correlogram of Residual Squared

20. ARCH-GARCH Model

21. Forecast for 1/3/04 to 5/21/04

22. Forecast for Normal Model

23. Forecast values for ARCH- GARCH

24. Forecasting 5/21/04 – 9/03/04

25. .

26. Conclusions There is an upward trend in oil prices for the Have significant impact on Consumer Price Index (CPI)

27. Economic Significance of Results Crude Oil Prices are increasing this summer This is largely due to a steady increase in oil demand in the United States and China However, supply disruptions are impossible to predict and could affect oil prices