Why did nobody else forecast that the oil price would collapse?

Brent Nov14aBrent oil prices closed at $104.71/bbl on Friday 15 August.  On the following Monday morning, I published the first post in my Great Unwinding series, arguing that:

The Great Unwinding of the failed stimulus policies since 2008 has now begun…oil markets are starting to follow cotton and other commodities in refocusing on the fundamentals of supply and demand”.

A week later on Wednesday 27 August, I published the 2nd post in the series, under the title “Oil prices break out of their triangle – downwards“.   Brent prices had closed at $104.24/bbl the previous night.  And in the post, I explained why I thought prices were certain to fall, and forecast:

Logic would suggest they will fall to at least the 200-day exponential moving average, currently around $70/bbl, and probably lower”.

Last Friday night, as the chart shows, Brent prices closed at $70.15/bbl.

Of course, I am pleased that my forecast proved correct.

But I am greatly concerned that, as far as I am aware, I was the only commentator who gave due warning back in August (when there was still time to take mitigating action), that prices were just about to collapse.

This leads me to ask what seems to be a critically important question, namely: “Why did nobody else see this coming”?  And even more importantly, “Why did all the analysts and industry experts argue so strongly through September and October that I was wrong?” 

They have a great burden on their shoulders today.  At the very least, they owe their clients and the media a heartfelt apology for their colossal mistake.  They also need to explain why they were so wrong, and what they are doing to change their approach for the future.  This would be considered normal in any other industry:

  • They assured companies that it was impossible for prices to fall below $100/bbl
  • Investors in pension and hedge funds also put their cash to work on this basis
  • Now, all this money has been lost

Globally, companies and investors will have lost $bns as a result.  Some businesses may even go bankrupt, having believed the conventional wisdom that said such a collapse was impossible.

The scale of this failure demands an explanation, and a commitment to learn from the mistakes that have been made.

If you would like to download our Research Note containing the full series of Great Unwinding posts, please click here. 

I also hope you will consider subscribing to our new ‘pH Report’.  It aims to guide clients through the Great Unwinding of policymaker stimulus now underway.

We hope it will build on our track record of being one of the few to forewarn of the 2008 financial crisis.

The weekly round-up of Benchmark prices since the Great Unwinding began is below, with ICIS pricing comments:

Benzene Europe, down 34%. “The outlook for the rest of 2014 is decidedly bearish. Downstream demand is limited due to inventory destocking ahead of year-end”
Naphtha Europe, down 32%. “Naphtha supply is still seen as long in Europe on high refinery run rates”
Brent crude oil, down 28%
PTA China, down 25%. ”Prices largely fell, despite production cutbacks in December.”
¥:$, down 16%
HDPE US export, down 5%. “US export prices began to drop during the week, though trading was thin because of the upcoming holiday”
S&P 500 stock market index, up 6%

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