Forecasting oil futures by Justin Wolfers (Wharton School, Univ. of Pennsylvania) on Marketplace (a great show by the way)
Others ignore the professional forecasters and focus instead on what futures markets are saying. But it turns out that even futures prices are not as accurate as our simple formula. Even sophisticated econometric models don’t yield better forecasts than our simple no-change rule.
The truth is that forecasting oil prices is so darn hard that complicated formulae add nothing but complexity. And so the simplest forecasting rule also turns out to be the best.
This is another example of how tricky it is to predict financial markets. I am a bit surprised for relatively longer periods (like a year) the professionals do so poorly. My father, a statistician (among other things), challenged me to predict the movement of stocks on a daily basis better than his prediction (which was no change). I can’t remember the result - which makes me think I failed. I think I would be more likely to remember if I succeeded.
Related: Prediction Markets at Google - Illusion of Explanatory Depth - 30 Year Fixed Mortgage Rates Graph - Randomization in Sports
Energy and food prices have obviously been increasing dramatically. The economist has a nice chart showing where people spend most on food and fuel. In the USA, Canada, Western Europe and Australia people spend less than 25%. In Brazil, India, China, Mexico, South Africa, Turkey… they spend 25-40%. In Argentina, Saudi Arabia, Russia, Pakistan… they spend 40-50%. And in Mongolia, Nigeria, Iran, Kenya, Madagascar… they spend over 50%.
The data is from the IMF. As with any economic data there are issues to consider about comparing across countries. Still this is a stark illustration that the impacts those in the wealthy countries feel from rising energy and food prices are felt to a greater degree in poor countries (that already have economic difficulties).
Related: Food Price Inflation is Quite High - Helping Capitalism Make the World Better
The race has barely begun - finished plants are years away - but it’s blazing fastest in the Mojave, where the federal government controls immense stretches of some of the world’s best solar real estate right next to the nation’s biggest electricity markets. Just 20 months ago only five applications for solar sites had been filed with the BLM in the California Mojave. Today 104 claims have been received for nearly a million acres of land, representing a theoretical 60 gigawatts of electricity. (The entire state of California currently consumes 33 gigawatts annually.)
Related: Solar Thermal in Desert, to Beat Coal by 2020 - Solar Tower Power Generation - Global Wind Power Installed Capacity - real estate investing articles
The largest oil consuming countries (and EU), in millions of barrels per day:
| Country | consumption | % of oil used | % of population | % of World GDP |
|---|---|---|---|---|
| USA | 20.8 | 25.9 | 4.5 | 21.0 |
| European Union | 14.6 | 18.1 | 7.4 | 21.9 |
| China | 6.9 | 8.6 | 19.9 | 10.7 |
| Japan | 5.4 | 6.7 | 1.9 | 6.5 |
| Russia | 2.9 | 3.6 | 2.1 | 3.2 |
| Germany | 2.6 | 3.3 | 1.2 | 4.3 |
| India | 2.4 | 3.0 | 17.0 | 4.6 |
| Canada | 2.3 | 2.9 | 0.5 | 1.9 |
| Korea | 2.1 | 2.7 | 0.7 | 1.8 |
| Brazil | 2.1 | 2.6 | 2.9 | 2.8 |
| Mexico | 2.1 | 2.6 | 1.6 | 2.1 |
All data is from CIA World Factbook 2008 (downloaded Jun 2008). GDP calculated using purchasing power parity.
Related: Top 10 Manufacturing Countries 2006 - Country H-index Rank for Science Publications - Best Research University Rankings (2007)
Japan to Cut the Cost of Solar 50% Creating Greater Self-sufficiency
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The incentive will decrease the cost of a solar photovoltaic system by an estimated 50% within 3 to 5 years. This initiative will make solar energy especially appealing because the cost of electricity in Japan is already over $.20 a kWh. This is roughly double the rate of electricity found in many areas of the US.
Germany is the largest solar market (due to government policy encouraging solar development).
Related: Large-Scale, Cheap Solar Electricity - Solar Energy: Economics, Government and Technology - Wind Power Potential to Produce 20% of Electricity Supply by 2030 - solar energy posts on the Curious Cat Science and Engineering blog
You might think that increased gas prices lead to less driving, but historically that has not been the case. Gas demand is very inelastic (or gas prices are very elastic): which means demand changes very little as prices increase.
How much has consumption actually decreased in the face of huge increases in prices? The US government predicts .3% this year: and there is evidence it might actually be declining more in the last few months. Finally a significant reduction in demand may be upon us. Previously the only significant reaction was increased complaints but little change in behavior.
Gas may finally cost too much:
Related: Bigger Impact: 15 to 18 mpg or 50 to 100 mpg? - Gas Tax - $8,000 Per Gallon (ink not gas) - South Korea Invests $22 Billion in Overseas Energy Projects - The Rebirth of Cities - Traffic Congestion and a Non-Solution - Energy Future - Designing Cities for People, Rather than Cars - Gas Prices Send Surge of Riders to Mass Transit
South Korea to Start $22 Billion Fund for Oil, Gas Projects
South Korea needs to catch up to China and India, who have scoured the globe to lock in resources to fuel economic growth. Korea, the world’s fifth-largest importer of oil, buys in 97 percent of its energy and resource needs.
This sounds like the type of news that 3 years later everyone says was the sign of a bubble. Today it is hard to tell whether the boom in oil and commodity prices are a bubble or a sign of a huge demand increase that the cannot be supplied at current costs (combined with the plunging dollar which exaggerates the trends - and maybe by a decrease in supply too). I would have to say I am leaning toward a bubble signal but to what extent? Is the average price over the next 5 years going to be $50 a barrel (versus $93 today) versus say $25 a few years ago? Or is that price $100 or $150? In a few years people will say it was obvious today - what are they saying today?
Related: MIT’s Energy ‘Manhattan Project’ - 10 Stocks for 10 Years Update (Feb 2007)