Comments on: Oil prices: understanding the past, predicting the future http://www.libdemvoice.org/oil-prices-understanding-the-past-predicting-the-future-8483.html Our place to talk - an independent website for supporters of the Liberal Democrat party in the UK. Sat, 11 Feb 2012 08:55:56 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Tim Leunig http://www.libdemvoice.org/oil-prices-understanding-the-past-predicting-the-future-8483.html#comment-75925 Tim Leunig Thu, 08 Jan 2009 00:42:14 +0000 http://www.libdemvoice.org/?p=8483#comment-75925 Mark: I made predictions for the FT, and am happy to revisit them 1) No risk of economic stability. As I said, there was no risk that Britain would return to the economic instability of the 1970s, in which we had a 3 day week, widespread strikes, or the collapse of the banking system. Correct: the power is still on, strikes are uncommon, and no customer has lost a penny in any bank. Globally I predicted 3.3% growth, and the IMF's current best guess of growth in 2008 is 3.75%. So that was a correct prediction. I predicted no East Asian style currency/financial crisis: right on the currency, wrong on the finance. I predicted a danger that some UK mortgage payers would get into trouble, but that declining interest rates would lead banks to be lenient so that relatively few were repossessed: correct. I noted that recent price rises meant that negative equity would be rare, and as far as I know that has been true so far. I added that the effect of mortgage rates and tougher credit on consumer spending was hard to predict, and that too was correct. I predicted a danger that if inflationary expectations rose, then the Bank of E would raise interest rates. Since commodity prices fell, this prediction was not tested, although I would be happy to make it again. And I was honest enough to admit that we should be worried about the unexpected, and in that I as more right than I expected. I definitely underpredicted the severity of the banking crisis, although the prediction that some shareholders would lose money was true. I would tell you about the rest of my predictions, but the FT will charge me £150 to read them! :-( Mark:

I made predictions for the FT, and am happy to revisit them

1) No risk of economic stability. As I said, there was no risk that Britain would return to the economic instability of the 1970s, in which we had a 3 day week, widespread strikes, or the collapse of the banking system. Correct: the power is still on, strikes are uncommon, and no customer has lost a penny in any bank.

Globally I predicted 3.3% growth, and the IMF’s current best guess of growth in 2008 is 3.75%. So that was a correct prediction.

I predicted no East Asian style currency/financial crisis: right on the currency, wrong on the finance.

I predicted a danger that some UK mortgage payers would get into trouble, but that declining interest rates would lead banks to be lenient so that relatively few were repossessed: correct.

I noted that recent price rises meant that negative equity would be rare, and as far as I know that has been true so far.

I added that the effect of mortgage rates and tougher credit on consumer spending was hard to predict, and that too was correct.

I predicted a danger that if inflationary expectations rose, then the Bank of E would raise interest rates. Since commodity prices fell, this prediction was not tested, although I would be happy to make it again.

And I was honest enough to admit that we should be worried about the unexpected, and in that I as more right than I expected.

I definitely underpredicted the severity of the banking crisis, although the prediction that some shareholders would lose money was true.

I would tell you about the rest of my predictions, but the FT will charge me £150 to read them! :-(

]]> By: Mark Inskip http://www.libdemvoice.org/oil-prices-understanding-the-past-predicting-the-future-8483.html#comment-75913 Mark Inskip Wed, 07 Jan 2009 23:18:01 +0000 http://www.libdemvoice.org/?p=8483#comment-75913 Tim's being economical with the truth as well as being smug. His prediction was "that oil prices will not end 2008 materially higher" but they've in fact collapsed to less just over $42 a barrel today (biggest one day fall since 2001). And the biggest cause the global recession that Tim failed to notice was on its way. Go back to the original article and there's a link to an FT piece from 1st Jan 2008 with some more of Tim's predictions, e.g. Risk to economic stability in 2008 - none! House prices - Tim predicted "Not more than 10% average (fall) across the nation" Global Economic Growth - 3%+ (definitely not below 2%) Tim’s being economical with the truth as well as being smug. His prediction was “that oil prices will not end 2008 materially higher” but they’ve in fact collapsed to less just over $42 a barrel today (biggest one day fall since 2001). And the biggest cause the global recession that Tim failed to notice was on its way.

Go back to the original article and there’s a link to an FT piece from 1st Jan 2008 with some more of Tim’s predictions, e.g.

Risk to economic stability in 2008 – none!

House prices – Tim predicted “Not more than 10% average (fall) across the nation”

Global Economic Growth – 3%+ (definitely not below 2%)

]]> By: Meh http://www.libdemvoice.org/oil-prices-understanding-the-past-predicting-the-future-8483.html#comment-75905 Meh Wed, 07 Jan 2009 22:22:02 +0000 http://www.libdemvoice.org/?p=8483#comment-75905 The reality is, you got lucky, oil fell for a bunch of reasons not present in your model, at least as you described your model at the time. That rather indicates you still have plenty to learn and should consider being a little less smug. The reality is, you got lucky, oil fell for a bunch of reasons not present in your model, at least as you described your model at the time.

That rather indicates you still have plenty to learn and should consider being a little less smug.

]]> By: Geoffrey Payne http://www.libdemvoice.org/oil-prices-understanding-the-past-predicting-the-future-8483.html#comment-75876 Geoffrey Payne Wed, 07 Jan 2009 19:38:48 +0000 http://www.libdemvoice.org/?p=8483#comment-75876 Well you certainly got that prediction right. I am not such an expert, so I would report in hindsight that a lot of the inflation was down to speculators. The deflation has been largely due to a drop in demand caused by the economic downturn. I do recall Tim being interviewed on the BBC World Service predicting that the downturn would be relatively minor, because over the years we have learnt how to handle economic downturns and will not repeat past mistakes. That turned out to be wrong. I wonder if that were correct, how much the oil price would have come down then? Clearly a lot less. I am still inclined to believe that the long term trend in oil prices are upwards, but the effects of markets is to mask the underlying trends with exaggerated peaks and troughs. However if the recession gets worse, then oil prices will clearly also remain low. Upward pressure on prices will come from lack of supply caused by oil fields drying up and from political instability; the Middle East is not looking good at the moment. It is also disappointing that we have not found a replacement for oil either. Well you certainly got that prediction right. I am not such an expert, so I would report in hindsight that a lot of the inflation was down to speculators.
The deflation has been largely due to a drop in demand caused by the economic downturn. I do recall Tim being interviewed on the BBC World Service predicting that the downturn would be relatively minor, because over the years we have learnt how to handle economic downturns and will not repeat past mistakes. That turned out to be wrong.
I wonder if that were correct, how much the oil price would have come down then? Clearly a lot less.
I am still inclined to believe that the long term trend in oil prices are upwards, but the effects of markets is to mask the underlying trends with exaggerated peaks and troughs.
However if the recession gets worse, then oil prices will clearly also remain low.
Upward pressure on prices will come from lack of supply caused by oil fields drying up and from political instability; the Middle East is not looking good at the moment.
It is also disappointing that we have not found a replacement for oil either.

]]> By: David Heigham http://www.libdemvoice.org/oil-prices-understanding-the-past-predicting-the-future-8483.html#comment-75867 David Heigham Wed, 07 Jan 2009 19:13:18 +0000 http://www.libdemvoice.org/?p=8483#comment-75867 I have always been glad that I have no need to make short or medium term predictions for crude oil prices. Over the longer, climate change, horizon it is reasonable to suppose that crude oil will not stay above $(2008)70-100 a barrel. Above that level, it will probably pay to turn coal into oil by 'clean' processes. Refined oil fuels are a different matter. Carbon, gasoline or other taxes; or pollution permits seem bound to force up their price a good deal more. I have always been glad that I have no need to make short or medium term predictions for crude oil prices.

Over the longer, climate change, horizon it is reasonable to suppose that crude oil will not stay above $(2008)70-100 a barrel. Above that level, it will probably pay to turn coal into oil by ‘clean’ processes.

Refined oil fuels are a different matter. Carbon, gasoline or other taxes; or pollution permits seem bound to force up their price a good deal more.

]]>