H.S. Dent’s Hunan Model of Forecasting
No matter how many economic cycles we live through; the tendency is to assume where we are will continue as pointed out by H.S. Dent above.
Economic Cycle is defined as: The natural fluctuation of the economy between periods of expansion (growth) and contraction (recession). Factors such as gross domestic product (GDP), interest rates, levels of employment and consumer spending can help to determine the current stage of the economic cycle.
We are definitely in a contraction, i.e. recession for the oil and gas industry. This is well displayed by the Crude Oil Price History Chart from Macrotrentds. The chart starts from January 1946 going to the present day pricing.
It’s interesting to note that it was March of 1980 before the pricing topped $100 a barrel. Then the pricing trended downward to below $20 by November 1998.
The price then proceeded to bounce around $100 from October 2007 to June 2014. Since then the trend had been primarily down. This week oil is trading at less than $40.
In conclusion…History shows us that our Human Model of Forecasting is normally incorrect. Do, I expect oil pricing to increase as the supply decreases. Yes, I do. When? I’d be wrong if I predicted when. The good news is the cycle hasn’t been broken for seventy years. So, there is no apparent reason it should stop now.