Forecasting oil price has little investment value

…I too have had an eerie sense of deja vu when reading recent dissertations on the oil price, and how it in future will change our mode of behaviour. For instance, due to the high price of gasoline, the concept of suburban living is so yesterday. And of course, long distance travel by car or plane is a thing of the past.

My sense of having seen this movie before emanates from the feeling that today’s forecasts of the future effects of record oil prices might easily have been reprints of articles written in 1973 during the so-called “energy crisis.”


At the time OPEC had been founded and oil prices quadrupled overnight. Subsequently by the end of the decade, oil increased another tenfold in price to US$36 per barrel.

There are several lessons one might have learned from the massive increases in commodity prices of the 1970s: – People’s behaviour patterns tend to be driven more by how much the price has changed rather than the level itself. If something goes from to $2 from $1, people cut back on consumption much more than if it goes to $10 from $9. – There is a difference between journalism and history. With a deadline looming, inundated with a barrage of news, it is hard to keep historical perspective. – Never underestimate people’s ability to adapt to change.

Financial Post