Publications: Notes at the Margin

Introspection: Investors Are the Best Forecasters (July 3, 2017)


This was a week for introspection among those who try to project oil prices. Goldman Sachs, Bank of America Merrill Lynch, Citibank, all tempered their optimism regarding the direction of crude oil prices in 2017 and 2018. While doing this, the analysts at Goldman asked this question: "How did we (and the market) get it so wrong?" Our practice for some time has been to derive projections for future oil prices (WTI) from the movement of share prices in the BP Prudhoe Bay Royalty Trust (BPT). Our December 2016 projection for the WTI price on June 30, 2017, was $47.35 per barrel. The actual price Friday was $46.03. The question we ask in this week's report is what do the BPT investors see now regarding future prices? We answer that question as well as explain how Goldman Sachs and other forecasters "got it so wrong."


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