Crude Predictions: A Look Back

By Michael Kanellos

One of the great things about the Internet is that it makes it a lot easier to look back at older predictions and scoff.

This past May, for instance, oil analysts from major investment banks squared off on the future of oil prices. Arjun Murti of Goldman Sachs released a report then, according to the Telegraph, saying that demand from China and lackluster growth in supply will push oil near the $200 mark over the coming months.

“We believe the current energy crisis may be coming to a head. A super-spike end game may be in the early stages of playing out,” Murti wrote, according to the paper.

During the same week Lehman Brothers’ Edward Morse speculated in a report that Saudi Arabia may boost output by 1.3 million barrels a day next year, more than the growth in demand. This could push prices toward $90 a barrel. The Saudis recently said that three new fields have entered production, he noted at the time. And the country has used oil for diplomatic overtures before. A weakened correlation between the dollar and oil prices may also help push prices down.

And what happened? Oil prices are around $81 a barrel today, but not because of the factors Lehman’s Morse outlined. Sinking demand and the worldwide credit shock caused oil prices to plummet. Ironically, Lehman has been one of the biggest victims of the crash. So that’s what you get for being right for the wrong reasons.

Side note: In May, I also had my cat, Fraulein Katze, walk across my keyboard to come up with a prediction. She came up with $132 a barrel. She’s got to start thinking more outside of the cat box. (Disclosure: Frost and Sullivan sometimes employ her as a consultant.).

In many ways, the whole episode points out one of the underlying, scary facts about the oil business: It is wildly unpredictable. I recall once attending an oil technology conference in Qatar in 2005. Oil had just come down from $70 a barrel to the mid-50s range. Despite the drop, companies were enjoying a surge in profits. So you’d expect everyone to be excited.

Not so. Abdullah Bin Hamad Al-Attiyah, second deputy prime minister and minister of energy and industry for Qatar, went out of his way to remind the audience that boom times only last for brief periods.

Comments

[Jackson Cash:]

To think that investment banks were not among the sole culprits behind the manipulation of oil would be utterly irresponsible.

Many of us have seen the highly locked away trading floors of oil, clogged with any/every excuse to corner the market on oil.

Saw that coming a mile away when even the House of Saud was surprised!

2008 Oct 14 04:34 PM

[PeteK:]

In southern California, gasoline price dropped from $4.69 few weeks ago to $3.39 lately.
Right away the Highway traffic increased by at least 30%.
Don't worry about oil price, it will go up again soon.

2008 Oct 15 03:40 AM

[Ferdinand E...:]

The gentleman from Qatar was almost correct: boom times do not last forever. But the last one lasted long enough to take the oil price almost to $150/b, and it will eventually take it back there again. As for his country, their plans are to keep the boom times going indefinitely, regardless of what happens on the buy side of the gas and oil market. I say good luck to them, and hope that we eventually get some political masters who understand exactly what is taking place in the great world of energy.

2008 Oct 15 10:19 AM

[CLH:]

There is plenty of oil--most of the reasons for oil going to infinity are gone with other foolish predictions.

I aways laugh when people are wrong and they blame it on manipulation by the gods that be.

Good article which shows that even the smartest people can be wrong.

2008 Oct 15 12:08 PM