T. Boone Pickens Should Stop With the Oil Forecasting

Predicting the price of oil is more difficult than it seems, even for energy experts.

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In this Nov. 21, 2007 file photo, Shell Oil Company's Deer Park refinery and petrochemical facility is shown in the background as vehicles travel along Highway 225 in Deer Park, Texas. The Gulf oil spill may have people ready to quit petroleum cold turkey, but it's not that easy. Oil is everywhere. It permeates our daily lives in ways we never think about. It's in carpeting, furniture, computers and clothing. It's in the most personal of products like toothpaste, shaving cream, lipstick and vitamin capsules. Petrochemicals are the glue of our modern lives and even in glue, too.

Michael Lynch is the president and director of global petroleum service at Strategic Energy & Economic Research.

Watching the cable business news on Wednesday, I nearly fell off my chair listening to T. Boone Pickens describe himself as knowing more about energy than anybody in America, then admitting he couldn't explain falling oil prices given that world demand was 91 million barrels a day and the industry couldn't possibly keep that up. 

Anyone who has tried to forecast oil prices as often as Pickens does should certainly have a little more humility (God knows I've gained some), and given some of his own failed bets—on natural gas in the 1990s and wind more recently—he definitely needs a good dose of it. 

His inability to understand how the industry can meet demand should provide him with a clue that perhaps he doesn't know as much as he thinks. Instead, he makes the logical leap that it can't be done, and prices must rise. This is reminiscent of Erich von Daniken, who, not comprehending how ancient Egyptians could build the pyramids, concluded that aliens must have been involved. 

[See the 10 priciest years in history for gas.]

World oil production in April was estimated to be up nearly 4 million barrels a day year on year with recovery in Libya and soaring production in several places, most notably Iraq, but also the United States, Colombia, and Brazil. The notion that it peaked about 2005 (endorsed by Pickens in Playboy) is driven by a combination of weak oil demand and problems in a number of producers. Recent papers, such as the Nature article and an International Monetary Fund paper have mistaken short-term political problems for immutable trends. They should note that in 2007, Pickens said in Playboy we'd never pass 85 million barrels per day. We're now at 91 and climbing. Oops. 

Pickens made his great splash in the 1980s, pressuring oil companies to focus on their bottom lines (among other things), but since then, his entrepreneurial spirit has morphed into a lobbying effort for government support for pet projects, from vehicle conversion to natural gas to wind power and back.  Pickens should heed his own earlier advice, and focus on producing competitive products, not demanding that the government put up money for his pet plans. 

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