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Oil at $200 a Barrel

by @ 8:28 pm
Filed under: financial

Oil PricesSeems like an insane prediction when oil is hovering around $34 a barrel, but it was only in July when crude reached $147 and we were paying $4.20 per gallon to fill up our cars. Back then plenty of pundits and analysts were predicting $200/barrel oil and $6/gallon gas and everyone seemed to accept that prediction as a foregone conclusion.

Here's one such prediction published in New York Times in May 2008 titled: An Oracle of Oil Predicts $200-a-Barrel Crude. An oracle of oil? This was a mere 7 months ago, not decades to give the "oracle" a little margin of error.

I'm really not picking on this particular analyst who made this bold prediction in May 2008. When crude was trading just over $100 per barrel and rising sharply, it wasn't perhaps so radical to make such a statement. But even those pundits who strongly disagreed with this prediction didn't get it right, as evident by this statement in the same article: "Some say prices will fall as low as $70 a barrel by year-end, according to Thomson Financial." As low as $70? Did they possibly dare fathom as low as $30?

Every time I hear a prediction from one of these guys, I know they are winging it. Sure, they have access to lots of data, charts, reports, and specialized programs to crunch numbers, but in the end all they can give you is a best guess. It's like predicting the color the ball will land on while it's spinning in a roulette wheel.

Sometimes they get the color right and they come back gloating looking for validation. Other times they take bigger risks and predict the number the ball will land on. It's a gamble, and if it comes to pass, they can reap fame and fortune, at least for a while. In the end their predictions are probably just as good as a moderately informed investor.

Oil didn't hit $200 per barrel. Instead it took a nose-dive amidst the worsening financial crisis and a severe slowdown of consumer spending. Who knows, in a year or two or three it may reverse course again and really reach $200 per barrel. Would that be a vindication for the oracle? Not at all. If he had correctly predicted the intervening price swings, I might have become a believer. But then again if he could do that, he wouldn't need a job forecasting oil prices. He'd be an instant billionaire tanning on a beach.

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1 Comment »

  1. Exactly.

    But I think it touches on a bigger issue of why we should even rely upon experts - the operative word being 'rely'.

    Unfortunately, the world is increasingly 'relying' on so-called experts for anything, I reckon for the reason that we have someone else to blame if we're proved wrong. What we should be doing in this age of experts is not to 'rely' on them but to 'use' them so we can make more informed judgments ourselves.

    Comment by Anonymous Author — December 26, 2008 @ 9:03 pm

 

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