Short-Term Energy Outlook Model Documentation: Petroleum Product Prices Module
February 10, 2015
Overview
The petroleum products price module of the Short-Term Energy Outlook (STEO) model is designed to provide U.S. average wholesale and retail price forecasts for motor gasoline, diesel fuel, heating oil, and jet fuel. Motor gasoline regulargrade retail price forecasts are also provided for the 5 Petroleum for Administration Defense Districts (PADDs): East Coast, Midwest, Gulf Coast, Rockies, and West Coast. Motor gasoline consumption shares for each PADD are used to calculate an average U.S. regular gasoline retail price. The price equations use PADD-level inventory forecasts for total motor gasoline and total U.S. inventories for distillate fuel oil and jet fuel.
The frequency of the STEO model is monthly and the model equations are used to produce monthly forecasts over a 13-to-24 month horizon (every January the STEO forecast is extended through December of the following year).
The STEO model contains over 2,000 equations, of which about 450 are estimated regression equations. The regression equations are estimated and the forecast models are solved using the IHS EViews Econometric Software. The petroleum product prices module contains 45 equations, of which 29 are estimated regression equations. Some input variables to the STEO model are exogenous, coming from other modules in the STEO model or forecasts produced by other organizations (e.g., weather forecasts from the National Oceanic and Atmospheric Administration).
Gasoline is sold in different formulations: conventional, reformulated, and different blends with ethanol. There are also several grades of gasoline based on octane content: regular, mid-grade and premium. Retail prices of regular grade gasoline, all formulations, which covers over 80 percent of all motor gasoline sold in the United States, are estimated for the 5 PADDs and the national average. A national average retail price for all types of motor gasoline is also estimated.
Regional motor gasoline retail prices are estimated as a function of the average U.S. motor gasoline wholesale price and regional inventories. Regional motor gasoline prices are aggregated to the U.S. level by weighting regional prices by estimated regional consumption shares. The average U.S. gasoline wholesale price is estimated as a function of the Brent crude oil spot price and total U.S. finished gasoline and gasoline blend component inventories.
The petroleum product prices module includes average U.S. diesel fuel and heating oil wholesale prices (refiner prices for resale) and average U.S. diesel fuel and heating oil retail prices.
Jet fuel is a refined petroleum product used in jet aircraft engines. There are two general types of jet fuel: naphtha-type jet fuel and kerosene-type jet fuel. The use of naphtha-type jet fuel, which has a distillation range similar to that of motor gasoline, was phased out in the early 1990s. The petroleum product prices module includes only a jet fuel price charged by refiners to end users.