Modelling the implied volatility surface as a function of an option's strike price and maturity is a subject of extensive research in financial markets. The implied volatility in commodity markets is much less studied, due to a limited liquidity and the complicated structure of commodity options. A new semi-parametric method is introduced for modelling the implied volatility surface and is applied to the option price data from oil markets. This approach combines the simplicity of a parametric method with the flexibility of a non-parametric approach. The method can successfully deal with a limited amount of option price data. Performance of the method is investigated by applying it to prices of exchange-traded crude oil and gasoline options, and the results are compared with those obtained by a purely parametric approach. Furthermore, the investigation of the relationship between volatilities implied from European and Asian options shows that Asian options in oil markets are significantly more expensive than theoretical arguments imply. © 2008 Elsevier B.V. All rights reserved.