|Over the first 3 1/2 months of 2011, according to EIA, the price of (benchmark West Texas Intermediate) crude oil in the United States has averaged around $96 per barrel. This compares to $61.95 and $79.48 per barrel in 2009 and 2010, respectively, during a severe economic downturn that caused world oil demand to fall sharply from pre-recession levels/growth rates. Today, with the world economy - and, hence, world oil demand - rebounding, combined with unrest in the Middle East and an oil supply disruption in Libya, oil prices (and, of course, gasoline prices) have moved back up as well.Now, none of this should be particularly surprising to oil market economists, but I was curious -- did any of them actually manage to correctly forecast this situation? First, let's start with one outfit that actually suspected something like this might happen, back in March 2005 no less!|
Oil prices have entered the early stages of a multi-year period of trading in which economic growth and rising demand could push oil to $105 per barrel, enough to meaningfully reduce energy consumption, Goldman Sachs analysts said Thursday."We believe oil markets may have entered the early stages of what we have referred to as a "super spike" period -- a multi-year trading band of oil prices high enough to meaningfully reduce energy consumption and recreate a spare capacity cushion only after which will lower energy prices return," said analyst Arjun Murti.When this forecast came out, I was working as a world oil markets expert at EIA. I clearly remember most people scoffing at the Goldman Sachs forecast (note: not to pat myself on the back, but along with a few others at EIA, I was very bullish on oil prices at that point -- based on rapidly growing world oil demand and tightening OPEC spare capacity, among other factors -- and most definitely did NOT scoff at Murti). In fact, as this article explains, "When Murti first predicted oil could reach a $105 a barrel, way back in March of 2005, oil was trading below $60. The prediction was scorned and laughed at, even as it caused a bump in crude prices... some thought it was just a Goldman Sachs publicity stunt." Instead, as it turns out, "Murti's call was dead right, and all the naysayers were wrong."Other than Murti, what were most other forecasters expecting oil prices to be? I looked back at past long-term outlooks from EIA and other analysts, and the bottom line is that almost nobody saw this coming. For instance, back in 1998-2000, major forecasters (e.g., the IEA, EIA, DRI, PEL, PIRA, and GRI) were all predicting oil prices for 2011 (I've extrapolated between 2010 and 2015, since there are generally no point estimates for 2011 per se) under $30 per barrel (in $2010). Clearly, nobody was even close to where we're actually at today -- nearly $100 per barrel for the first 3 1/2 months of 2011.
So, I figured that as the forecasts got closer in time to today, they'd get significantly better. But no...not particularly. For instance, forecasts for 2011 made in 2004-2005 were generally in the upper $20s per barrel (in $2010), to about $40 per barrel in the case of PIRA. Again, not even close to where we're actually at.
Goldman Sachs Nailed Oil Price "Super Spike"; Other Forecasters Not So Much
Wednesday, April 20, 2011
Posted by Lowell at 1:09 PM