Modelling Retail Gas Price in California: Time series analysis approach

ABSTRACT : The retail gas price is critical as it serves as an important influencer in the daily livelihood ofthe residents in California and the world at large. The sole objective of this research paper is to model the retailgas price in California as well as predict the future pattern of the retail gas price in the state using suitable timeseries models. Secondary data was used for this study, and it is extracted from the online publication of the U.S.Energy Information Administration. The collected data for this research ranges from the period of January 2001to July 2022.The unit root test was performed, and the series became stationary after the first difference. TheACF and PACF show similarity in exponential decay which points to the suitability of the ARIMA model.Then, several tentative ARIMA models were estimated and ARIMA (2,1,8) was the best based on the selectioncriteria of having the highest number of significant coefficients, highest adjusted R-squared, lowest volatility,lowest AIC, and BIC. Furthermore, the test of the presence of the ARCH (1) effect was also conducted and theARCH effect model was estimated and was also found to be statistically significant at a 5% level.Meanwhile,ARIMA (2,1,8) shows a future downward trend in the future retail gas price in California state while the ARCH(1) model shows a future upward pattern or trend in the retail gas price of California state. Additionally, theretail gas price hit about 5.9 U. S dollars per gallon in July 2022 which also contributed to the current increase inthe U.S inflation rate and this also brings about an increase in the cost of living and constitutes seriousdifficulties in the livelihood. As a result of this, the government need to fully implement the newly proposedinflation reduction Act which will positively impact the energy, environmental and health sector of the countryand thereby making a better livelihood for the entire citizens possible and facilitate industrial growthexceedingly. Consequently, the united nation needs to take drastic measures to end the Russian-Ukraine war toprevent the further economic surge that could emanate from a possible rise in the price of retail gas if the warcontinues as more European countries would need to rely on the US for gas supply.

KEYWORDS: Retail gas price, Unit root test, ACF, PACF, ARIMA, ARCH.