PARIS (ResourceInvestor.com) -- Like a lot of markets, the oil indexes are strange beasts indeed. Theories come and go. Waves of fashion wash across the shores of analysts, journalists and institutions alike. Quite amazingly most of them are wrong. If there is one tip about predicting the oil markets it is this: don’t.
Let us take a few of the fashion tips we have been handed in 2005 for review. Firstly many economists, especially the arch neo-liberal Michael Lynch, told everyone in 2004 that oil prices would be back at $35 by the summer time. Wrong.
Currently the average price of oil in 2005 is some 36.7% up on 2004. So in fact ‘wrong’ may be an understatement. The annual average price per barrel is trucking along just nicely at $56.70. As you may note, $56.7 is not $35.
Does anyone still remember the much vaunted ‘terror premium’? It was a phenomenon borne out of many of the events of 2004. Of course pipelines, especially in Iraq but also places like Nigeria, are constantly under attack. Defending them is a serious new cost for the oil business.
Yet since September 19th 2005, there have been more than 15 attacks on pipelines inside Iraq alone. Iraqi crude output has been constantly curtailed, down below 2 million barrels a day, for all this time. Way below the Saddam sanctions era even. Yet this period coincided with one of the longest (10 weeks) mini bear trends in recent memory.
British chancellor Gordon Brown was perhaps the most senior politician to play this year’s oil blame game. In what may be an amazing coincidence, or shameless political opportunism, he attacked OPEC on national TV just a few days before planned British fuel protests.
He said that OPEC was the cause of high prices. Nothing to do with the amount of fuel levy he (and previous Conservative Chancellors alike) places on British drivers. He said OPEC should pump more oil. They did. The price promptly rose to $70.
It would be less shameless, or coincidental, had not British North sea output carried on its astounding decline rate. It is down 50% since its 1999 record of 3.1 million barrels per day (mbpd) at under 1.6 mbpd. Gordon Brown was in reality asking OPEC to spend their money to make his life easier. Amongst analysts the derision was often off the record, but it was harsh.
Gordon Brown however could be forgiven. He is a politician. They always have a string of amazing coincidences going on in their lives. Cynics might say they talk in the language of plausible deniability in the same way as a shoplifter or burglar. But we have no time for cynics do we?
The International Energy Agency (IEA) however has slightly less excuse. Energy is their raison d’etre, not political power. Or at least that is what they say. They predicted that in 2005 non-OPEC output growth would be 1.38 mbpd. That figure has now been revised. It now stands at 0.1 mbpd. That in itself may yet be revised, downwards.
So currently the IEA’s non-OPEC output growth forecast is only just out. If you could say that an error of 92.75% is ‘just out’. If you want to say that, maybe you could contact Gordon Brown. It is probably OPEC’s fault somehow.
Reassuringly the IEA have revised upwards their non-OPEC output growth figure for 2006. Next year they assure us it will now be 1.39 mbpd, not 1.32 mbpd that they had already called. Mind you they do not have to go far to beat this year’s prediction.
American ‘demand destruction’ was also in vogue just a few weeks ago. Yes, the IEA told us it was happening. Yet a few weeks later American demand for gasoline rose by 600,000 barrels in one week, to stand at 22.156 mbpd. That is not just a lot. That is a record high, ever.
Peak Oil ‘believers’ have also been polishing their oily crystal balls. This year seems to have been the year for ‘peak freak’. The fascist British National Party arrived at a depletion conference in Scotland, replete with heavies. Eco-primitivists tell us that 50 years from now we will all be riding oxen and wearing homemade smocks, if we have not died off.
Racists see that ‘peak oil’ will mean a wiping out of immigrants as society collapses into Nazism. Survivalists are polishing their weapon collection. Communists are awaiting the rise of a new Chairman Mao to march us away from our addiction to oil. Liberals believe it will usher in an era of collective responsibility, solar power and homegrown vegi-burgers.
Meanwhile neo-liberal fundamentalists like author Peter Odell tell us that oil will be drilled forever and waste is a good thing. Their party ideology seems to be based on the same logic as the Japanese whaling industry. The more you consume the more you will consume. If you believe that eat all the food in your fridge now, the market will send you more courtesy of the magic oil pixies.
It would be nice to think that all this predictive energy could be put to more constructive use in 2006. Maybe by finding out the actual reality of today. Maybe by measuring exports more accurately than a man on a quay looking at a tanker to see how low it is in the water. Yes, that is how it is done, if at all. Maybe we could get a worldwide independent audit of fields and reserves so we can genuinely see where we are. After all it is hard to predict the weather inside a windowless concrete box.
But if you want a prediction from this journalist, that will not happen. 2006 will be the same round of rumour, counter-rumour and daily market bedlam. Fantastic, I can’t wait.
