As 2024 comes to a close, it’s the season for pundits to weigh in on predictions, trends, and hot topics. We turned to our favorite analyst, Mr. Question Man, for his thoughts on the future of oil prices and other key issues. Here’s what he had to say.
Q: Where are oil prices headed, and does it really matter?
A: You’ve likely heard John Kenneth Galbraith’s famous line about economists making projections—they only serve to make astrologers look good. But let me give you an answer. Oil prices will continue to fluctuate around a long-term trend, just as they have for the past fifty years. This pattern is known as “reversion to the mean.” And yes, it does matter—at least it has for the last five decades (see Fig. 1).
The steady rise in oil prices often looks like it’s due to inflation. When we look at the real price of oil, adjusted for inflation, it has remained mostly unchanged over the past 50 years. While prices waver, they always return to the trend line. From 1974 to 1999, oil prices rose by 3.4% per year, while the Consumer Price Index (CPI) increased by 4.7% annually. From 1999 to 2024, oil prices grew at 4.0% annually, while CPI grew at 2.6%. Overall, from 1974 to 2024, oil prices and CPI both increased at 3.7% per year.
So, if you’re looking for a reliable long-term forecast, maybe just bet on inflation and skip the complex economic models. It’s like that moment in grad school when an econometrician filled the board with equations to explain the economy, and another professor said, “I can predict just as accurately using a ruler.”
Q: So, what’s your point?
A: Short-term fluctuations in oil prices come from factors like economic activity, weather, natural disasters, wars, shipping disruptions, and OPEC decisions. Most of these are unpredictable. However, we know that both the Chinese and European economies are weak right now, and there’s a chance that the next U.S. president will push for higher domestic production if OPEC cuts supply too much. So, barring any other major shocks, I would bet against a short-term price recovery.
But oil companies shouldn’t make long-term investment decisions based on short-term price swings. Investments in oil production last decades, and that’s the timeframe they should be considering. The most predictable factor going forward is the falling rate of population growth and the increasing investment in electric and hybrid vehicles, which will reduce the demand for oil in the transportation sector.
Beyond that, any projection is just guesswork—albeit highly-paid guesswork. Why not just project oil prices to hover around $70 plus inflation and make decisions based on that? Prices will fluctuate, but the trend should remain steady.
Q: So, you’re suggesting we should just use a ruler to predict long-term oil prices?
A: Exactly. Unless you have a better idea?
Q: What impact do you think the Trump administration has had on global climate policy?
A: Trump could pull the U.S. out of international agreements and refuse to fund assistance to countries affected by climate change. However, the U.S. is no longer the dominant player it once was. If American industries are encouraged to revive outdated sectors, like coal-fired power or internal combustion engines, through regulation and subsidies, it creates a problem for them. They’d be catering to just 15% of the global market, losing economies of scale and efficiency. Why invest in companies that are moving backward instead of embracing modern technologies?
Q: Let’s wrap up with the energy crisis. What do you think about those governors talking about Utah coal and the expected demand from data and AI centers?
A: What “crisis”? The five major companies that will profit from AI and data centers have combined sales of nearly $1.8 trillion and net profits of around $400 billion—about four times the revenue and six times the profit of the entire electric industry. If these companies are truly concerned about energy supply, they could easily build their own private, low-carbon, underground electric networks. It would cost them around $0.5 to $0.7 trillion—a sum they can definitely afford.
This so-called crisis is manufactured by data center owners who want someone else—utility ratepayers—to foot the bill for their increasing electricity needs. It’s not really an energy crisis; it’s a funding issue.
Q: Thank you for your insight, Mr. Question Man.
A: I just hope you’re not flattering me to get me on OilPrice instead of Fox News!
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