Predicting oil prices is a fool’s errand
And boy, are there a lot of fools.
This year, oil is going to be very busy. It will hit $70 a barrel. It will fall into the $20 range, and then down into the teens. It will double from $26 within twelve months. It will deflate to $15. It will rise $15 over the course of the year and stabilize at around $46. It will slump to as low as $10. It will jump back to $100. It will dive below $0, even though that isn’t technically possible.
I could go on listing contrasting predictions — of which there are no shortage — but it would be pointless. The reality is, oil prices are unpredictable, and they always will be.
Trying to forecast where the oil market will go is about futile as trying to build a house of cards on the deck of a boat in the middle of the ocean. Every time someone thinks they’ve got the oil market figured out, a new storm comes along to wreck all their predictions. Whether it’s the introduction of a new technology like fracking, political instability in major oil producing nations, or a concerted effort by a number of nations to artificially alter the price, we’re always one new revelation away from a completely different market.
It doesn’t even need to be a storm. Just light breezes, like rumors that producers are going to cut/freeze output, or even predictions from analysts, can knock over the house of cards that so many “oil experts” desperately try push on investors and pundits. Case in point: Oil was at the highest level it’s been all year earlier this week, simply because Ecuador held a meeting with all the other Latin American oil-producing nations.
(U.S. crude closed at $37.72 Wednesday, up 42.1 percent from $26.55 on Jan. 20.)
Even if there are certain aspects of the oil market that can be quantified and used to help points out trends — like supply, demand, and storage capacity — there are simply too many intangibles for any single person to be able to accurately predict where the price of oil will be tomorrow, much less a year from now.
So here’s an idea: How about instead of prognosticating ourselves into oblivion, we take steps to wean ourselves off of our oil addiction? That’s what Brazil did. By giving their people fuel choice and promoting ethanol as an alternative to gasoline, the country successfully stopped importing oil back in 2006. Every time the price of oil goes up, Brazilians simply switch to more ethanol. If it goes down, they switch to less. It’s not complicated — unlike the oil market.
Until we do something similar in the United States — whether it’s with ethanol, electricity, natural gas, or some combination of the three — we will remain stuck in the endless feedback loop of unpredictable oil prices.
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