2018 5th International Conference on Control, Decision
and Information Technologies (CoDIT’18)
Modeling and Forecasting of Fuel Selling Price Using Time Series
Approach: Case Study

Younes Fakhradine El BAHI,
Haj EL MOUSSAMI, Zineb AMAN
Mechanics & Integrated Engineering
ENSAM School, Moulay Ismail University
P.O. Box 15290, Al Mansour, 50000
Meknes, Morocco
elbahiyounesfakhradine@gmail.com,
hajelmoussami@yahoo.com, zineb.aman@gmail.com
Abstract—The liberalization of the petroleum sector in Morocco
has a significant effect for petroleum product distributors. Since
the beginning of December 2015, fuel prices are freely determined.
This event presents many constraints affecting the balance of the
sector plus the competition between its economic players. The lack
of accompanying measures by the State makes this vital reform for
public finances that stop subsidizing the price of gasoline
vulnerable. With the halt of the competitive manufacturing’s
activity, Morocco's only refinery, distributors must, for their part,
build up large stocks. As all fuel products are imported, we will be
interested in the evolution by making forecasts of the price of fuels
in the Moroccan market. In order to achieve their objectives, the
oil companies must rely on precise forecasts. In this context, our
paper aims mainly to study the time series of diesel and gasoline in
order to provide precise forecasts to the company and to respect
the permissible error margin of 3%. To this end, we worked with
the ARIMA method. We found that the ARIMA model (1,1,1)
gives forecasts of the price of gasoline near the margin to be met
for the first quarter of the current year with an average error
margin of 2,855%. In addition, the assumption that the residuals
are a Gaussian white noise has always been verified.
Keywords—liberalization of the petroleum sector; forecast; time
series model; ARIMA.
I. INTRODUCTION
Crude oil price forecasting has widely been considered as
one of the most important but challenging issues in the research
fields of data analysis and prediction, due to the interactive
uncertain factors driving the crude oil market. On the one hand,
similar to other energy commodities, the crude oil is directly
associated with various uncertain market factors, e.g., supply
and demand, competition between providers, substitution with
other energy forms, economic development, population growth
and technique development [1].On the other hand, as the crude
oil is a dominant resource concerning energy security, the crude
oil market is super-sensitive to diverse uncertain external
factors, such as political instabilities, wars and conflicts [2] [3].
978-1-5386-5065-3/18/$31.00 ©2018 IEEE
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Thessaloniki, Greece
April 10-13, 2018
Latifa EZZINE
Modeling, Control Systems and Telecommunications
Faculty of Sciences, Moulay Ismail University
P.O. Box 1120, Zitoune, 50000
Meknes, Morocco
latifae@yahoo.com
Recently, oil prices have made the headlines of the financial
press on a daily basis in Morocco. Since the end of 2015, fuel
prices are now governed by the free play of supply and demand.
Now, consumers have the freedom to choose the station they
can use. This liberalization is in principle an opportunity for the
Moroccan economy because it will encourage all economic
actors to rationalize their behavior. However, the analysis of the
government's approach reveals several shortcomings that could
prevent consumers from taking full advantage of the benefits of
this liberalization. Several risks hover around this measure that
will have to be curbed. In this sense, stock uncertainty poses a
real threat to supply and a risk of rising prices. What is in
question here is rather the timing of the liberalization which is
not very opportune with the problematic stop of the production
of the only refinery of Morocco ensuring alone about half of the
60 days of the country's strategic stock. Especially that the risk
of out of stock with the winter period (disruption of supply due
to the bad weather) is even greater and must be taken seriously.
Because, in case of pressure on stocks, it will encourage
speculation of all kinds and prices will flare up. The uncertainty
also relates to the evolution of oil prices. Certainly several
studies estimate that the price of oil should not exceed 60
dollars in the 2 years to come.
Nevertheless, nothing is less certain because we are never
immune to a turnaround of the economy especially in the
current sensitive geopolitical context that can make prices start
up again. And in the event of a turnaround, it is clear that the
government has not planned anything and believes that this
status quo will last as long as possible. The challenge here is to
prevent the government from questioning liberalization by
intervening on prices in the event of a rise in prices.
The case of the suppression of indexing in 2000 following
the rise in international prices is still there to testify. Hence, the
need to provide support mechanisms (mutual insurance
mechanism and price forecast for example), which would
amortize the possible rise in prices. And even if prices are low
today, note that with an overvalued dollar, prices at the pump
will be higher than they should be.
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 This was the case for the last fortnight of October 2015,
when the price decline was counterbalanced by the rise in the
dollar. The risk posed by dollar fluctuations is to be taken. Our
paper aims to implement a forecast process for fuel prices, we
will try to forecast the fuel named super unleaded “Super sans
plomb: SSP” prices for the year 2017 based on the history of
the four previous years through the ARIMA approach.
II. LITERATURE REVIEW
A. Forecasting Price
Oil price forecasting is known to be a challenging task. The
large number of variables affecting the price, the non-linear
effects and feedback loops, and all the “unknowns” and
uncertainties can quickly compound into very different
estimates depending on who you ask. Maybe for this reason the
outlooks that are presented and published have been
dominantly concerned with the price development for a few
years ahead. Only occasionally researchers aim to model oil
and other energy prices into the more distant future. Given the
importance of crude oil as the world’s primary energy source in
general it is crucial to have a good understanding of how these
prices behave in the long term, without getting blinded by all
the details and noise influencing the short term prices [4].
Despite our great oil dependence, there is remarkably little
research aiming at understanding the long term real oil price
development. The focus of the research within the oil sector is
often on reserves, future supply or (peak) production [5-8],
taxation [9], oil price shocks based on properties of supply and
demand [10-11], or (relatively) short term forecasting of oil
prices and consumption [12]. One reason for why so little
attention has been given to long term oil price modeling and
forecasting may be that it is known to be difficult due to
ambiguous or poor information about the true global oil
resources [6], and the complexity of both the characteristics of
the commodity and the market mechanisms in general. One
recent study that focuses on understanding the behavior of oil
prices is the seminal paper of Hamilton [13].
The oil price forecasts is the basis of all supply chain
planning. The pull processes in the supply chain are performed
in response to customer demand, whereas all push processes are
performed in anticipation of customer demand [14]. A company
must understand such factors before it can select an appropriate
forecasting methodology because it may have difficult to decide
which method is most appropriate for forecasting. Forecasting
methods are classified according to the following four types:
Qualitative, Time series, Causal and Simulation [14].
A time series consists of observations arranged in
chronological order [15].Time series forecasting models use
mathematical techniques that are based on historical data to
forecast oil price. It is based on the assumption that the future is
an extension of the past; thus, historical data can be used to
predict future oil price [16].
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By time series analysis, the forecasting accuracies depend
on the characteristics of time series of demand. If the transition
curves are stable and periodical the high forecasting accuracies
will be expected, whereas high accuracies cannot be expected if
the curves show highly irregular patterns [17].
B. Autoregressive integrated moving average (ARIMA)
There are several different approaches to time series
modeling. Traditional statistical models including moving
average, exponential smoothing, and ARIMA are linear in that
predictions of the future values are constrained to be linear
functions of past observations.
Because of their relative simplicity in understanding and
implementation, linear models have been the main research
focuses and applied tools during the past few decades.
Time series forecasting models are increasingly applied to
forecast demand and short-life product demand. Under an
autoregressive moving average (ARMA) assumption,
Kurawarwala and Matsuo [18] estimated the seasonal variation
of PC products demand using demand history of pre-season
products and validated the models by checking the forecast
performance with respect to actual demand. Miller and
Williams [19] incorporated seasonal factors in their model to
improve forecasting accuracy while seasonal factors are
estimated from multiplicative model. Hyndman [20] extended
Miller and Williams’ [19] work by applying various
relationships between trend and seasonality under seasonal
autoregressive integrated moving average (ARIMA) procedure.
Forecast from eight different combination of trend and
seasonality were compared in the model. The classical
approach ARIMA becomes prohibitive, and in many cases it is
impossible to determine a model, when seasonal adjustment
order is high or seasonal adjustment diagnostics fails to indicate
that time series is sufficiently stationary after seasonal
adjustment. In such situations, the static parameters of the
classical ARIMA model are considered the main restriction to
forecasting high variable seasonal demand. Another restriction
of the classical ARIMA approach is that it requires a large
number of observations to determine the best fit model for a
data series.
An ARIMA model is labeled as an ARIMA model (p, d, q),
wherein:
• p is the number of autoregressive terms.
• d is the number of differences.
• q is the number of moving averages.
The autoregressive process
Autoregressive models assume that Yt is a linear function of
the preceding values and are given by Eq. 1:
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 Yt  1Yt 1   t
Literally, each observation consists of a random component
(random shock, ε) and a linear combination of the previous
observations.  1 in this equation is the self-regression
coefficient.
The integrated process
The behavior of the time series may be affected by the
cumulative effect of some processes. For example, stock status
is constantly modified by consumption and supply, but the
average level of stocks is essentially dependent on the
cumulative effect of the instantaneous changes over the period
between inventories. Although short-term stock values may
fluctuate with large contingencies around this average value,
the level of the series over the long term will remain
unchanged. A time series determined by the cumulative effect
of an activity belongs to the class of integrated processes. Even
if the behavior of a series is erratic, the differences from one
observation to the next can be relatively low or even oscillate
around a constant value for a process observed at different time
intervals. This stationarity of the series of differences for an
integrated process is an important characteristic from the point
of view of the statistical analysis of the time series. Integrated
processes are the archetype of non-stationary series. A
differentiation of order 1 assumes that the difference between
two successive values of Y is constant. An integrated process is
defined by Eq. 2:
Yt  Yt 1   t
Where the random perturbation εt is a white noise.
The moving average process
The current value of a moving averaging process is defined
as a linear combination of the current disturbance with one or
more previous perturbations. The moving average order
indicates the number of previous periods embedded in the
current value. Thus, a moving average is defined by Eq (3):
Yt   t  1 t 1
Based on the earlier work of Yule [21] and Wold [22], Box
and Jenkins [23] developed a practical approach to building
ARIMA models, which has the fundamental impact on the time
series analysis and forecasting applications. The Box–Jenkins
methodology includes three iterative steps of model
identification, parameter estimation and diagnostic checking
steps (see Hanke and Reitsch (1995) [24]). The basic idea of
model identification is that if a time series is generated from an
ARIMA process, it should have some theoretical
autocorrelation properties. By matching the empirical
autocorrelation patterns with the theoretical ones, it is often
possible to identify one or several potential models for the
given time series. Box and Jenkins [23] proposed to use the
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(1) autocorrelation function and the partial autocorrelation function
of the sample data as the basic tools to identify the order of the
ARIMA model.
In the identification step, data transformation is often needed
to make the time series stationary. Stationarity is a necessary
condition in building an ARIMA model that is useful for
forecasting. A stationary time series has the property that its
statistical characteristics such as the mean and the
autocorrelation structure are constant over time. When the
observed time series presents trend and heteroscedasticity,
differencing and power transformation are often applied to the
data to remove the trend and stabilize the variance before an
ARIMA model can be fitted. Once a tentative model is
specified, estimation of the model parameters is
straightforward. The parameters are estimated such that an
overall measure of errors is minimized. This can be done with a
nonlinear optimization procedure.
The last step of model building is the diagnostic checking of
model adequacy. This is basically to check if the model
assumptions about the errors are satisfied. Several diagnostic
statistics and plots of the residuals can be used to examine the
goodness of fit of the tentatively entertained model to the
historical data. If the model is not adequate, a new tentative
model should be identified, which is again followed by the
steps of parameter estimation and model verification.
Diagnostic information may help suggest alternative model(s).
This three-step model building process is typically repeated
several times until a satisfactory model is finally selected. The
(2) final selected model can then be used for prediction purposes.
As one can imagine from the above procedure, the Box-
Jenkins-method requires much experience and significant input
from the demand planner. Further, the initial estimation of the
model should be based on at least 50 observations of demand.
Therefore, ARIMA models might be suitable only for some
important A-class items or for mid-term aggregate forecasts.
But, if ARIMA models are utilized, the quality should be better
than for simple time-series models or even causal models.
III. RESULTS AND DISCUSSION
(3)
In this section, we will model the real data of the price of
fuel named « SSP » in order to make predictions that are
important to determine future selling prices. The model shown
on Fig. 1 is based on the price of the fuel “SSP” in a Petroleum
manufacturing from January 2012 until December 2016.
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 Fig.1. Selling Price of “SSP”
A. Determination of the differentiation parameter
A stationary series fluctuates around an average value and
its autocorrelation function declines rapidly to zero. If a series
has positive autocorrelations for a large number of offsets (for
example 10 or more), then it needs to be differentiated.
Differentiation tends to introduce negative autocorrelations. If
offset autocorrelation 1 is 0 or negative, the series need not be
differentiated. If offset autocorrelation 1 is less than -0.5, the
series is over-differentiated. The optimal order of
differentiation is often the one for which the standard deviation
is minimal. An increase in the standard deviation must therefore
be considered as a symptom of over-differentiation. A third
symptom of over-differentiation is a systematic change of sign
from one observation to another.
Under SPSS, we have drawn the Autocorrelation Function
(ACF) and the Partial Autocorrelation Function (PACF), the
results found is shown on Fig. 2 and Fig. 3.
The series has a large number of positive shifts for the
autocorrelation function, so it needs to be differentiated.
Fig.2. ACF correlogram of the selling price series
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Fig. 3. PACF correlogram of the selling price series
The following stage consists in sufficiently differentiating
the series to make it stationary while avoiding an excessive
differentiation likely to give unstable models and to involve a
loss of information. In our case, it was sufficient for us to take d
= 1 because of linearity of the tendency.
Moreover, to assess whether the data come from a
stationary process we can perform the unit root test: Dickey-
Fuller test for stationarity. After carrying out the test on the
Xlstat software, the results are grouped in table 1.
H0: The series has a unit root.
H1: The series does not have a unit root. The series is
stationary.
Since the calculated p-value is less than the threshold
significance level alpha = 0.05, the null hypothesis H0 must be
rejected and the alternative hypothesis H1 must be accepted.
The risk of rejecting the null hypothesis H0 while it is true is
less than 0.92%.
Consequently, our model ARIMA (p, d, q) will have a
differentiation order d = 1. We also note that the T-Ratio for
the constant of model μ is less than 2 in absolute value. We
must therefore deduct it from the model before determining the
parameters p and q.
B. Determination of the autoregressive parameter
The Figures 4 and 5 show the residue curve and the ACF
and PACF diagrams of the residues of the ARIMA model (0, 1,
0).
TABLE I. TEST RESULTS
Tau (Observed value) -4.0325
Tau (Critical value) -0.7648
p-value (unilateral) 0.0092
Alpha 0.05
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 C. Determination of the moving average parameter
According to the figures, the autocorrelation function has a
significant peak at offset 2, it can be deduced that the parameter
q for the moving average is therefore equal to 1.

Now, the T-Ratio for the moving average parameter θ1 is

lower in absolute value than 2. So we cannot retain this model.
Similarly, the ARIMA model (0,1,2) presents moving average
parameters whose T-Ratio is less than 2 in absolute value.
D. Mixed ARIMA model
After several iterations, we found that only the ARIMA
model (1,1,1) had higher T-Ratios in absolute value than 2.
This is the model we should use to make forecasts.

After having obtained the coefficients, the equation of the

model retained is as follows:

Fig. 4. Residue curve (4)

Table 2 lists the forecasts obtained for the first quarter of

2017.

Fig. 6. Results of the ARIMA model (1,1,1)

TABLE II. FORECAST RESULTS FOR THE ARIMA MODEL (1,1,1)

Fig. 5. ACF and PACF diagrams of the residues of the ARIMA
model (0,1,0)
Fortnight Real Price Model % Error
From figures 4 and 5, the partial autocorrelation has a 1Q January 1072 1042,49 -2,752798507
significant peak at offset 2, it can be deduced that the 2Q January 1074 1043,05 -2,881750466
differentiated series comprises an autoregressive signature. The 1Q February 1072 1043,59 -2,650186567
parameter p is therefore equal to 1. 2Q February 1082 1044,21 -3,492606285
However, the T-Ratio for the autoregressive parameter φ1 is 1Q March 1084 1044,81 -3,615313653
lower in absolute value than 2. So we cannot retain this model. 2Q March 1064 1045,48 -1,740601504
Similarly, the ARIMA model (2, 1, 0) presents autoregressive
parameters whose T-Ratio is less than 2 in absolute value.

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 According to the graph on Figure 6, we notice that the real
model is very close to the one developed at the base of
forecasts made using the ARIMA (1,1,1) model.
From the table II, we can clearly see that the model chosen
can be used for modeling and forecasting the future sells in this
petroleum manufacturing, but each time we need to feed the
historical data with the new data to enrich it in order to improve
the new model and forecasting.
IV. CONCLUSION
In this paper, we studied the selling prices of the SSP
through the ARIMA model. We developed ARIMA model
based on the historical data. This study allowed us to determine
the optimal autoregressive, moving average and differentiation
parameters in order to make predictions. The latter were quite
satisfactory with regard to the constraint set by the company
(plus or minus 3% as margin of error) but the linear nature of
the forecasts does not allow us to say whether the price will
know a change in the up or down and that will be the subject of
our future work. We will also take into account unforeseen
factors.
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