Gasoline Price to Drop to 400

➡️The price of gasoline could drop to 400 drams in the next 2 months.

Comparison of gasoline prices in Armenia and the USA (See first chart).

I should note that it is not accurate to directly compare gasoline prices in Armenia and the USA, as the USA is the largest oil-producing and consuming country, which already imports almost no oil from OPEC+ countries. Armenia does not have oil reserves and imports gasoline from Russia. However, global oil prices affect gasoline prices in both the US and Armenian markets, as shown in the chart. Gasoline prices exhibit the same upward and downward trends in almost all countries.

Currently, the price of gasoline in Armenia is at a record high. Note that since September 8, the price of gasoline in Armenia has remained almost unchanged at $1.32, and the increase in the price of regular gasoline from 540 to 570 drams recorded on October 4 was mainly due to the devaluation of the dram, from 380 to 402 drams. The import price in dollars has not changed.

Chart 1. Comparison of Gasoline and Diesel Fuel Prices in Armenia and the USA

* Notes: The market price in Armenia has been converted using the daily international dollar exchange rate.

➡️Will the price of gasoline decrease?

Let’s discuss the possible preconditions that could lower the price of gasoline.

1. Decrease in US gasoline prices. The price of gasoline in California, USA, dropped from $1.03 to $0.69 on September 30. Again, I should note that gasoline prices in the US and Armenia are formed by different market mechanisms, but both are affected by global oil prices.
2. Decrease in global oil prices. The price of Russian Urals oil peaked at $80 per barrel on September 30; currently, it is $65 per barrel, a decrease of about 20 percent. Other oil benchmarks also decreased during the same period (see Chart 2).
3. Lifting of the Russian gasoline export ban. On September 21, Russia imposed a temporary ban on the export of gasoline and diesel fuel, with the exception of EAEU countries. The purpose of this step was to saturate the Russian market with fuel and lower its price in the domestic market. This step also limited the global supply of gasoline. Restrictions on the export of gasoline and diesel fuel have already been lifted, on October 7 and 22, respectively. This, in turn, increased the supply of fuel in the external market.
4. Possible appreciation of the dram from 402 to 380 drams. Recently, the currencies of almost all developing countries have appreciated. The ruble has appreciated by 9 percent, the Kazakh tenge by 4 percent, the Polish zloty by 9 percent, the euro by 4 percent, and the Kazakh tenge by 4 percent (see Chart 3). This trend is still continuing. This also puts pressure on our market, especially considering that the volume of dollars in the Armenian market has somewhat increased in the last 2 months.

➡️How much could the price of gasoline decrease in our market?

A decrease in oil prices could lower gasoline prices by 20 percent, and an appreciation of the dram from 402 to 380 could account for a 5 percent decrease. In that case, the total price of gasoline could decrease by about 25 percent in the next 2-3 months, making regular gasoline 400 drams and premium gasoline 430 drams.

Chart 2. Comparison of Global Oil Prices and Armenian Gasoline Prices

• To understand how and by whom gasoline prices are formed in the domestic market, read the previous analysis.
• Among my previous forecasts that have materialized: the ruble will appreciate to 88-82 rubles per 1 dollar. I made this forecast 2 months ago, at a point when 1 dollar was 98 rubles.

Chart 3. Dollar Depreciation. Dynamics of several exchange rates in the region (01-11-2023 = 100%)

Gasoline Price Forecasting Using Machine Learning Models

This section is technical in nature.

We have also built a number of models (including machine learning models) that forecast the price of gasoline in the domestic market, using international oil prices with a 30-day lag. This allows us to forecast gasoline prices for the next 30 days, taking into account recent changes in oil prices.

The models used are: arima, auto_arima, arima_with_xgboost, prophet, seasonal_reg_stlm. The model metrics are given below.

The chart below is interactive (read this article on our website for that). It shows the gasoline price forecast according to the 5 models mentioned for the next 30 days. According to the 12-day seasonal_reg_stlm and auto_arima models, no change in gasoline prices is expected in the coming month. However, the arima, arima_with_xgboost, and prophet models predict that the most probable gasoline price values in the Armenian market after 1 month will be 1.05, 1, and 1.2 dollars, respectively.

Chart 4. Gasoline Price Forecast in the Armenian Market

Again, I should note that the code for this forecast, the charts, and the databases are available on our Github. The databases include: gasoline prices in Armenia, global oil and gasoline prices, several exchange rate databases, and databases on gasoline import prices and domestic fuel price inflation.

Additional Information.

• OPEC+ postpones policy meeting to Nov 30, oil falls, 22/11/2023
• Ban on export of summer diesel fuel lifted, 22/11/2023
• Government canceled temporary ban on gasoline exports, 7/11/2023
• Wholesale gasoline prices in Russia collapsed to a minimum, 21/09/2023

Media Reports on Gasoline Prices

Watch my interview given to 1in.am media outlet, explaining why the price of gasoline could become 400 drams. This interview complements this analysis and presents market trends in a more accessible way.

If you are interested in hearing my comments and seeing how I conduct my research, you can participate in my stream.

I am committed to presenting and explaining everything I do in a stream or vlog format. This will be initial and experimental, which I hope will be continuous.

English Summary

This newsletter provides an in-depth analysis of gasoline prices in Armenia, forecasting a potential drop to 400 drams within the next two months. We begin by comparing gasoline prices in Armenia and the USA, acknowledging that while market mechanisms differ, both are significantly influenced by global oil prices. Currently, gasoline prices in Armenia are at a record high, standing at $1.32 since September 8. The increase in regular gasoline prices from 540 to 570 drams on October 4 was primarily due to the dram’s devaluation from 380 to 402 drams, rather than a change in the dollar-denominated import price.

Several factors could contribute to a decrease in gasoline prices. These include a reduction in US gasoline prices, as seen in California where prices fell from $1.03 to $0.69 on September 30. More significantly, global oil prices have decreased, with Russian Urals oil dropping by approximately 20 percent from a peak of $80 to $65 per barrel since September 30. Furthermore, Russia’s temporary ban on gasoline and diesel fuel exports, imposed on September 21 to stabilize its domestic market, has been lifted on October 7 and 22 respectively, increasing global fuel supply. Finally, a potential appreciation of the dram from 402 to 380 drams could also play a role, following a trend of currency appreciation in many developing countries, including the ruble (9%), Kazakh tenge (4%), Polish zloty (9%), and the euro (4%). This trend, coupled with an increased volume of dollars in the Armenian market over the past two months, exerts downward pressure on prices.

Our analysis suggests that a combined effect of a 20 percent decrease in oil prices and a 5 percent dram appreciation could lead to an overall 25 percent reduction in gasoline prices in the Armenian market over the next 2-3 months. This would bring regular gasoline to 400 drams and premium gasoline to 430 drams. We also refer to our previous analysis on how domestic gasoline prices are formed and highlight a past successful forecast regarding the ruble’s appreciation.

In a more technical section, we detail the use of various machine learning models, including arima, auto_arima, arima_with_xgboost, prophet, and seasonal_reg_stlm, to forecast domestic gasoline prices. These models utilize international oil prices with a 30-day lag to predict prices for the subsequent 30 days. While some models like seasonal_reg_stlm and auto_arima predict stable prices for the coming month, others such as the arima, arima_with_xgboost, and prophet models forecast probable gasoline prices in the Armenian market to be $1.05, $1, and $1.2 respectively after one month. The code for these forecasts, charts, and underlying databases (including Armenian gasoline prices, global oil and gasoline prices, exchange rates, import prices, and domestic fuel inflation) are publicly available on our Github repository.

For further insights, I invite you to watch my interview with 1in.am, where I discuss why gasoline prices could reach 400 drams, offering a more accessible explanation of market trends. Additionally, I plan to host streams or vlogs to present and explain my research methodology, aiming for this initial, experimental format to become a continuous effort.