Holding Daniel Yergin and CERA Accountable

This post started when I heard Daniel Yergin, the CNBC Energy Analyst interviewed by Larry Kudlow on Sept. 14, 2007. Yergin claimed that the high price of oil was not supported by the fundamentals. My jaw fell to the floor. Last year, the price of oil deserved to plummet by 20% (which it did). The amount of oil in storage tanks was very high. But this year, week on week, the oil in storage has dropped, meaning that the fundamentals do support a higher price than last year. Here is the chart. Note that in 2007 (red curve) the US storage numbers are way way down from what they were in 2006 and we haven’t even had a hurricane.

After the interview, Larry Kudlow said something to the effect that Yergin was the authority on oil and he would believe what he said. Over the past week, I have emailed Larry Kudlow’s show twice about this silly claim, but, haven’t received any response. I decided to look at CERA and Yergin’s claims over the past few years and see if their prognosticative powers were as bad as I suspected.

As a note of confession, I must tell the readers that in 2003 when I was Director of Technology for a large independent oil company, I had a discussion with the VP of marketing for my company. I asked him why on earth we paid for CERA’s research when their stuff was constantly wrong. He said he knew that they were wrong but that we always wanted to listen to alternative views. With that I agree, but in the press, CERA is constantly proclaimed to be a ‘highly respected’ research firm. There may be less respect than is proclaimed. I do agree with my friend, the former VP of marketing, that one should always listen to alternative viewpoints.

Respect is earned. That is what I always told my children. By that standard, CERA does not have my respect. Their predictions have been too wrong too often to win my respect. As a personal note, in 2004, I invested in some energy mutual funds. If I had believed CERA and Daniel Yergin’s predictions, that would have been an incredibly stupid thing to do. Since 2002 at almost every opportunity, Yergin and CERA have proclaimed that the oil prices were about to fall. If I had believed them, I would have sold out early and often. As a convinced Hubbert Peaker, I am convinced of the opposite.

The Oil Drum