TME Weekend
What the market gets wrong about oil price
The forward curve has a significant influence on price estimates despite its tendency to be incorrect. The forward tends to react to the spot price but in a more muted way, like the movement of a chain lifting in an anchor. Almost every oil price forecast has lower prices in the future than today but Bernstein shows there is only a 1 in 3 chance the trend of declining prices is correct. Over the last 20 years they show that the forward curve has been directionally correct at predicting the 5 year forward oil price just 48% of the time, effectively a coin toss. Interestingly, when the market is in contango the forward curve is right 68% of the time. However, when the market is in backwardation it is only right 33% of the time.