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The Accuracy of Expert Opinions

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Greg Salverson
Recently, The Week magazine published a study on the accuracy of expert predictions. The study included predictions from the last couple of decades made by industry and government experts and found that the expert’s predictions came true less than 50% of the time. That means the expert opinion is slightly less accurate than a coin flip. So let’s look at some expert opinions about the future of the Oil industry and provide our opinion on which is a safer bet - flipping a coin and calling “heads” or betting that the author’s predictions will become a reality.


 
Future of Oil Reserves:
Just today the Street Authority wrote a well constructed article on Exxon Mobil titled The Best Oil Stock for the Next Decade. In this article the author quotes a prediction that the current estimates world oil reserves will last only for another 40 years, plus or minus improvements in consumption. While reading the author’s supporting facts, I noticed a slight misrepresentation. The author notes the decline of US oil production from the 1970’s through the year 2006, but did not note the increase in US domestic product since 2006 as new technology and higher crude prices have unleashed new oil suppliers. Given this, would you rather bet that oil will run out in another 40 years, or would you prefer a flip of the coin will land on heads?


 
Future of US Drilling:
Another very good article by Deloitte published today by Argus media looks at what impact of new US regulation, permitting delays, higher insurance premiums, and taxes will have on production in the Gulf of Mexico. These factors will raise production costs by an estimated 20% and when combined with the huge potential liability of an oil leak, will cause an exodus from the Gulf to cheaper international projects, ultimately increasing US energy costs. So what is your view? Would you rather bet that producers will leave the Gulf of Mexico for bluer (read less expensive) oceans driving up US energy costs or that a flip of the coin will land on heads?


 
Future of Energy:
Finally, let’s take a look at any of the number of predictions about what will power the future. Google the term, “the future of energy” and all the answers are revealed. It’s renewable energy… no it’s nuclear energy … no it’s natural gas…you get the point. It’s everything, but it’s not Oil. Forbes has a great blog on this topic, “If Oil’s On The Way Out, What Will Be In?” The author looks at the year 2050 and has renewable energy providing 40% of primary energy and 48% of electricity energy, but demand for oil only slipping 4% - making Oil a key part of the energy of the future but not the major part it is today (in part because they argue energy demand would outstrip oil reserves too quickly). So would you rather bet that Oil will be a key component of our energy future in 40 years or that a flip of the coin will land on heads?


 
I’d really like to hear from you – oh and you can also call “tails” if you like!

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