As specialty oil suppliers, we’re often asked where we see the oil market going. Indeed, our eye is always on the WTI (West Texas Intermediate) ticker. We monitor a lot of analyst buzz.
However, the more you pay attention to the experts, the more you see how far from clear-cut their predictions are.
That’s not to say they have no value. It’s akin to meteorology. We all pay attention to extended weather forecasts to give us a sense of what may happen.
But just how reliable are these predictions? Let’s compare oil vs. weather forecasting to examine what we can’t know for certain and what we can do to prepare regardless.
The Unpredictability of Crude and Specialty Oil Pricing
The prices we set on specialty oil products are subject to fluctuations in the crude oil market to a degree, though they’re not nearly as volatile as the price of fuel.
Still, crude oil drives pricing for all derivatives from petroleum to paraffinic, naphthenic, and aromatic oils. Everyone is paying attention to what the analysts have to say.
The trouble is that, in aggregate, their predictions have always been off significantly. Oil pricing trends are incredibly complex due to numerous factors:
- Difficulty in measuring current demand, especially in developing countries
- Effects of political changes that affect relevant policies (such as pipeline development)
- Geopolitical factors such as U.S. sanctions on, and the governmental instability of, oil-producing countries
- Global pandemics, most notably Covid-19 but also SARS, influenza, etc.
Just how far off can these predictions be? And how does oil market analyst accuracy compare with another set of data that’s important to the global supply chain: hurricane predictions?
Comparisons with Hurricane Prediction
As there are many disparate voices in oil market analysis, there are also several different storm prediction models to consider. This makes hurricanes about as tough to predict as oil pricing.
Hurricane Ian, for example, showed us that it took many predictive models for meteorologists to come up with a forecast reliable enough to reflect every possible scenario.
Just how many are there? 27 in all.
Even the models considered to be the most accurate can be way off the mark, as was the case more recently when Hurricane Otis struck near Acapulco.
No one saw it coming. The tropical storm intensified to a Category 5 hurricane so quickly, there was very little time to evacuate. As of a week later, Otis had officially claimed 46 lives, and 58 more were still missing.
So what lessons can we take from this comparison?
Crude and Specialty Oil Pricing: Lessons from Hurricane Season
The main lesson here is not that we shouldn’t take forecasts into account. Smart people are using all the tools available to give us the best possible view of the future.
But it’s also important to understand that in both oil and weather forecasting, we all need to keep in mind the limitations and potential fallacies in the conclusions the experts draw.
In hurricane prediction, some degree of uncertainty is inevitable:
“From a forecaster’s point of view, there is an advantage of having multiple models, because it helps them to better understand the uncertainty.” – Richard Rood, University of Michigan, professor in climate and space sciences and engineering
The same goes for the oil market. Even when considering the “consensus” opinion, we all need to understand the limitations of the consensus, such as in this study published in July 2023:
“The average consensus forecast (i.e. the average of the commodity price predictions) for WTI crude oil [2007-2016] was off by 27% when forecasting six months out. Oil price forecasts looking twelve months out were only slightly worse, off by an average of 30%. Another way of looking at it is that only in three of the nineteen periods reviewed was the consensus six-month forecast within 5% of the actual result.” – K. Galbraith, Economist
It seems to us that as complex as the task of storm prediction is, crude and specialty oil pricing predictions are at least as difficult if not more!
How Renkert Oil Mitigates Specialty Oil Pricing Fluctuations
If you live in the path of a potential hurricane, there are steps you can take – secure roofing, storm shutters, etc. – to prepare your home, even if you don’t know whether a storm is coming.
Similarly, by partnering with Renkert Oil, you can prepare your business to withstand the whims of the crude and specialty oil markets.
Although we can’t tell you where the oil market is going, there is much that we can do to help you stay above market fluctuations, contain costs, and maintain your supply security.
- Purchasing contracts for bulk supply from refineries to keep our prices competitive.
- Economical alternatives to trucking, such as rail, barge, and transloading options.
- Inventories at facilities across the U.S. and Europe to shorten supply lines and allow for inventory build when costs are lower.
- Product tanks topped up before hurricane season to weather any supply line disruptions.
- Best-in-class logistics for on-time and on-budget delivery.
No matter what happens in the crude oil market to affect the pricing of our specialty oil products, you can count on Renkert Oil to provide efficient, consistent, and cost-effective service.