18 October 2007

Official oil forecasts wildly incorrect

All three official Government oil price forecasts continue their tradition of being wildly wrong and miles away from last night's oil price rise to US$89 a barrel.

Just last month, the Reserve Bank issued a statement that oil prices would "stabilise at about US$68, before trending lower from the beginning of 2008". This prediction was recently revealed not to be based on any substantive analysis, by Green Party Co-Leader Jeanette Fitzsimons, at the Finance and Expenditure select committee.

Ms Fitzsimons says: "Every Reserve Bank prediction has said that oil prices will stabilise and then drop, when in fact they have continued to rise. In December 2005, the Reserve Bank's prediction was that the price right now would be US$40 a barrel - less than half what it actually is. The following year they recognised this looked silly so predicted the US$40 price would be reached instead at the end of 2009.

"Does anyone continue to believe this fantasy?"

Treasury has also been wrong. "Treasury's numbers matter, because the entire Government Budget is constructed using its assumption of oil prices. Its forecasts have been wrong for the last several years, although they are wrong by a somewhat smaller margin each year.

"In the 2005 Economic and Fiscal Update, Treasury forecast that prices, which were then at $70 a barrel, would hold at around $59 throughout 2006 - in fact they averaged $66 - and then fall to $54 at the end of the forecast period. That is totally contrary to the observed trend," says Ms Fitzsimons.

Only the Ministry of Economic Development has given an accurate forecast so far, but not in its "mainstream" forecast, which says that oil prices will be steady at around $60 a barrel until 2030. Its "alternative" prediction, based on the work of peak oil analysts, is the only accurate forecast so far.

Actual oil price over the last three years have been exactly on the curve of the "alternative" forecast, based on assumptions that oil supplies are peaking around now.*

"Dr Cullen said in the House last week he is not an expert in peak oil and therefore could not make a judgement between the varying estimates. Perhaps it is time he compared the predictions of the official forecasters with observed reality over the last four years, and called the Treasury, MED and Reserve Bank analysts into his office for a cup of tea."

note: * refer the two are graphed in fig 6.4 of the Energy Outlook, published in 2006.

ENDS

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