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Forecasting Crude Oil Prices
The history of oil forecasting has shown that no oil expert has been successful in predicting oil prices. This is due to the inability to either anticipate or accurately predict geopolitical scenarios, world oil supply/demand, and the impact of the spare capacity of oil exporters. Moreover, the oil futures market has not only failed to predict prices, but caused higher volatility and converted the oil market into a veritable gambling casino.
There has not been much appreciation of how the National Democratic Alliance government got lucky as a result of falling oil prices worldwide, since it came to power in 2014. The net oil import cost has fallen from a high of $112 billion in 2012 to $53 billion in 2016. As a result, the total subsidies doled out by the government have fallen from ₹1.61 lakh crore in 2012–13 to just ₹22,738 crore in 2016–17 (Government of India 2018). It was only ₹4,076 crore in the second quarter of 2017–18. The reason for this bonanza to the Narendra Modi government is the fall in oil prices from a high of $111 per barrel (bbl) in 2011 to $44/bbl in 2016 and $54/bbl in 2017 (USEIA 2018d).
Similarly, other oil-importing countries have benefited too. In 2012, oil-importing countries paid $1,070 billion to oil exporters which fell to $420 billion in 2016, a whopping reduction in transfer of wealth. The million dollar question, however, is: Will oil prices remain around the current price of $70/bbl (during the first quarter of 2018, it was $67/bbl [USEIA 2018e]) or zoom above $100/bbl or fall below $30/bbl to $50/bbl? The importance of the expertise to forecast oil prices accurately can hardly be overemphasised. But do we have the ability to forecast oil prices?
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