Finally, after a four-month stretch in which oil prices rose from under $70 to over $95, oil industry analysts seem to have caught on that prices are rising. From Bloomberg news (emphasis added):
Twenty-one of 35 analysts surveyed, or 60 percent, said oil prices will rise through Nov. 9 ... Respondents [had] predicted price drops in the previous 16 weeks.
That's right, for each of the preceding 16 weeks, the consensus of oil industry experts was that prices would fall in the coming week. They were right five times, wrong 11 times -- and crude prices rose by over a third during the stretch. So much for expertise.
Over the longer term, the oil industry analysts haven't fared much better:
The oil survey has correctly predicted the direction of futures 52 percent of the time since the survey's introduction in 2004.
Statistically, that's barely better than a coin flip. And, as it turns out, it's considerably worse than if the analysts had mailed it in and simply guessed that prices would rise each week.
So what's behind this dismal record, from people who allegedly know the oil industry? Wishful thinking? Incompetence? Market manipulation? Probably none of the above. As we've noted before, the futures markets don't always do a great job of predicting energy prices either. And arguably, futures markets are the very best methods we have of predicting prices, since they aggregate the guesses of thousands of well-informed people with a financial stake in getting the answers right.
No real point here -- except that when it comes to energy costs, it no longer makes much sense (if it ever did) to rely on expertise, or experience, or even the collective wisdom of the masses. Oil prices are seemingly charting their own direction. Recently, despite the opinions of the allegedly well-informed, that direction has been up.
In State of the Union, Obama panders to conservatives on ‘clean energy’
Oil: enough energy to melt glaciers!
Comments
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Delay And Deny Posted 7:10 am
05 Nov 2007
You realize of course, that the primary providers are no longer setting the prices, but the new combines are the exchanges that buy up the oil and set them...the futures. You have to remember that those guys compete against each other -- you and I filling up our Pontiacs are the flea on the elephant. However, because they tend to cut each other up, eventually the price will come down.
http://www.washingtonpost.com/wp-dyn/content/article/2007 ...
"It just seems that the market is spasming here," said Adam Robinson, an oil analyst at Lehman Brothers. If slowly declining petroleum inventories start to build again, he said, "the radical increase we've seen to the upside can repeat on the way down." Oppenheimer & Sons analyst Fadel Gheit says oil is $30 a barrel overpriced.
John Bailo
Sutext:
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Sean Casten Posted 7:41 am
05 Nov 2007
The longer term projections though are almost universal garbage, exactly as you point out. And it's worth noting that the modelers acknowledge as much. Knowing how much gas is in reserve today and what the demand is is fairly straightforward. But knowing what's going to happen 3 years from now is pure speculation - simply too many variables from economic growth to regulation to globalization to make meaningful predictions of supply or demand. And so the modelers base predictions just on linear extrapolation of past trends. If we've had 2 years of price rises, they predict the price will rise. 2 years of declines, they predict the price will fall. It's the way the models work, and the modelers admit as much, but figure it's better than anything else.
In short, I agree with your point - but I'm not sure it's either new info, nor something worth getting too concerned about. We simply ought to acknowledge the limitations of the projections before we use them too much for future planning.
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odograph Posted 7:55 am
05 Nov 2007
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odograph Posted 7:58 am
05 Nov 2007
That is, the answer to new conditions is a new prediction, and not a backwards looking analysis about the value of their predictions.
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Colin Wright Posted 9:21 am
05 Nov 2007
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GonzoDon Posted 1:11 pm
05 Nov 2007
That said, though, Kunstler is a self-proclaimed 'expert' who has produced his own share of embarassingly off-target predictions. My favorite being his prediction at the beginning of 2005 that the Dow Jones stock market average would plummet to 4,000 by the end of the year. (For those of you who haven't been paying attention, it has gradually risen since 2005 to record highs of 14,000+, and currently hovers around 13,500).
OK, so he was only off by 350%. I guess we all have our bad days.
Nevertheless, while Kunstler's apocalyptic vision of American's future probably contains more than a few grains of truth, I recommend against letting him manage your stock portfolio.
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trock Posted 11:05 pm
05 Nov 2007
Are markets, like oil markets, variable like the weather? Or are they variable like climate? Hell, we've got scientists who from their comments make me think they don't know the difference between weather and climate.
Just like I might not know on which at bat a hitter in baseball might get a homerun, doesn't mean I can't guess that there will be about as many total home runs in baseball as last year. Weather is each at bat, climate is the total at bats for the year.
Thinking I know all that is one reason I don't bet on baseball, sports or commodities markets. I don't have a good grasp of all those variables.
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odograph Posted 12:20 am
06 Nov 2007
I guess it's kind of nice and human for us to forgive our sooth-sayers, but it's kind of weird too.
I don't know why we should suddenly expect them to be right in the future, especially on "the big one."
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Whiskerfish Posted 2:40 am
06 Nov 2007
Whiskerfish
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trock Posted 4:14 am
06 Nov 2007
Just because you're paranoid, doesn't mean they aren't out to get you. Just because you predicted catastrophe before and were wrong, doesn't mean you'll be wrong again doing the same thing. Maybe it just means you can sell books with the same message to different problems.
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zxzkzkz Posted 5:44 am
06 Nov 2007
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Steve Erickson Posted 12:57 pm
06 Nov 2007
Steve E.
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