14/01/2015
With the oil price hitting a new six-year low on Monday last, with Brent Crude crashing by almost five percent to around $47.63 per barrel, the
Telegraph helpfully reminds us that in 2008, Goldman Sachs predicted that the cost of a barrel would hit $200.
This reminds us of the fragility of economic forecasts and also of the way the economic institutes failed to see the crash of 2008 coming. But even in the short-term, they are not getting it right, with Goldman Sachs having lowered its earlier three-month estimate for Brent to $42 per barrel from a previous forecast of $80 and reduced US crude to a price of $41.
Then, reinforcing its growing reputation for getting it wrong, the bank is warning that prices will have to remain close to $40 per barrel for some time in order to shut down a significant number of shale oil wells in the US. Yet Baker Hughes (now owned by Halliburton), one of the world's largest oilfield services companies â and therefore a firm with its finger on the pulse â says that the oil rig count in the US declined by 61 last week in the sharpest weekly fall since 1991.
The implications of this are huge â not least the knock-on effect in the UK where the shale revolution, already economically marginal, has yet to take off. Given that the
wholesale price of gas is also falling, and there was no wild enthusiasm within the energy industry for drilling test wells, it looks as if it could be some time yet before we see either gas or oil flowing from UK wells in any quantity.
Also on the back foot is the climate change industry, and its partners in crime, the renewable energy industries, who were reliant on massive price hikes to make the fossil fuels uneconomic. But their expectations seem to be about as valid as their predictions on temperature rises.
However, not everything is
as it seems. There appears to be an element of market manipulation here, maintaining production levels while demand is soft, in a deliberate attempt to drive higher cost shale oil out of the business.
Whether this actually works is moot, but there is also another player in this game, President Putin's Russia, which is being severely damaged by the falling prices. Where this will end no one knows.
One thing is certain though, none of this was predicted and if the mighty Goldman Sachs got it wrong, before it came the
Economist, which in 2003 predicted "the end of the oil age". The higher they climb, the harder they fall â and none of them have any better idea what it will be like ten years hence then they had ten years ago.
