Billionaire oilman T. Boone Pickens predicted in early 2007 that oil would rise over $80/b by the time he reached 80 years of age. Today, May 22, 2008, is Pickens's 80th birthday and, along with wishing him many happy returns, The Barrel wonders what use predictions are in the unprecedented price environment we find ourselves in today.
Pickens, who has repeatedly revised his predictions upward since the $80/b claim, fulfilled his prediction with 253 days to spare. In fact, the NYMEX July WTI contract rose to a new high of $135.09/b Thursday, but July Brent on ICE overtook it to peak at $135.14/b in early London trading.
When Pickens made his $80 prediction, WTI stood around $70/b, although $6/b moves in price generally took far longer to occur than they do in the current price environment, when a change of $6/b per day is not unheard of.
Whatever the reason for the current bull run -- and it's much disputed -- there's now some evidence that these higher prices could be here to stay for a while, as the volume of short positions on ICE and NYMEX exchanges has generally fallen, showing that the rally might continue.
Banks, oil companies and hedge funds are very much in the business of predicting prices for their own books, their clients' portfolios and maybe even the odd bit of PR.
But in a world where traders are seeking headlines to support the bullish numbers on the screen, it seems like the predictions themselves have a role in pushing prices higher.
On May 16 Goldman Sachs raised its forecast for oil in the second half of 2007 to $141/b and, given WTI and Brent both broke through $135 in early trading Thursday, this prediction might well see a revision soon. Prices that day rose to fresh highs -- but, in fairness, they do most days at the moment.
Prices also took a major upturn after Goldman's star oil analyst Arjun Murti said that crude could reach $200 in the next six months and that oil would continue to trend over $100/b until 2011.
Juicy headlines like these, fed to consumers increasingly feeling the pinch at the filling station, serve to inflate the price even more, many think.
Of course, there has to be enough money in the market for these rises to actually take place but, whatever the gloom over credit, speculators seem to be managing to find the funds, feeding the analysts' upwardly mobile predictions.
Boone Pickens himself has recently settled on a forecast of $150/b for 2008, although he is still at odds with those who say that the weak dollar and investment opportunities for funds are driving rising prices.
Pickens, a renowned subscriber to the peak oil theory, thinks that global demand is about 2 million barrels over the world's 85 million barrels of supply, and that's what's driving the market higher. Either way, it's not easy to predict.
Finding a correlation between crude prices and anything is getting increasingly tough and it seems that, just when an analysts think they've found a good tracker for oil prices, the link busts out.
One jokey slide from the International Energy Agency noted recently that, for a time at least, it had found the perfect correlation between crude prices and another factor, which matched perfectly on its graph. The other factor? The number of press mentions of the Hollywood comedy "Borat: Cultural Learnings of America for Make Benefit Glorious Nation of Kazakhstan".
The UK's Economist Intelligence Unit recently presented a fairly close correlation between the US dollar/Euro rate and the price of Brent futures with the trend line pretty much undeniable.
This link to currency is something that OPEC has recently focused on its theory that a 1% change in the dollar's fortunes accounts for a $4/b inverse change in crude prices.
Whatever the trend, whatever the correlations, those who laughed at and Barclays and Goldman analysts a few years ago for predicting $100/b oil are now wondering if $200/b oil is too far away.
The Barrel tried to contact Boone Pickens but he was unavailable. Whether he was busy celebrating his birthday or working on his next prediction is unknown.
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