Little Surprise: Oil Prices Will Rise:

Oil-price prognosticators, bruised after an unusually volatile spell in the oil patch, have reached a rough consensus on next year: Oil will be even costlier, even if the economy cools.

Consumers are likely to pay a lot more at the pump, too. The Energy Department predicts that far higher average oil prices will force gasoline prices to even out at $3.11 next year, up 10% from the average price of $2.81 this year.

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Forecasters are notching other lessons from 2007 in looking toward next year. One is that the almost irrational uncertainty that sent prices soaring to more than $98 in November from $69 in late August will last well into 2008.

“If I had to describe [2007] in one image, it would be dancing on thin ice,” says Fatih Birol, chief economist at the International Energy Agency, which serves as an energy watchdog for rich countries. Global spare capacity is so thin, he says, “that any little thing now can influence price.”

A year ago, almost no one in the oil business — from producers and Energy Department analysts to Wall Street traders — foresaw crude prices careening toward $100 a barrel this year. Some big investment houses, Morgan Stanley foremost among them, even predicted prices would fall. Instead, prices went on an unprecedented roller-coaster ride, rising to a nominal record of $98.18 last month from the low of roughly $50 a barrel in mid-January.

Most of the industry’s leading lights now are predicting the U.S. benchmark crude, as traded on the New York Mercantile Exchange, will average around $80 a barrel next year, up from $71.89 this year. The benchmark Friday closed at $93.31.

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The market has become so unpredictable lately that many forecasters are recalibrating their forecasts every few weeks — and rarely are they lowering them.

Goldman Sachs Group a month ago expected benchmark crude prices averaging $85 a barrel next year. Then economists there took note of some bullish trends, including signs of robust demand growth in much of the world, and this month raised their forecast to a startling $95 a barrel. For that price to hold, crude prices would have to spend much of the year above $100 a barrel.

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A recent study by Roland Berger Strategy Consultants, of Munich, Germany, found that in making its annual price assumptions, the rich countries’ own energy think tank, the IEA, of Paris, missed the actual price by 27% on average since 1999, mostly underestimating how high prices would go. The U.S. Energy Department’s Energy Information Agency fared only slightly better, with forecasts that on average came in 22% off the actual price.

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If prices do continue to climb, economists may finally get an answer to one the lingering riddles of the decade: At what price will oil consumers begin to recoil? Many thought it would happen at $50 a barrel, then $60, then $70.

Until there is a clear answer, and demand begins to taper off, Deutsche Bank’s Mr. Sieminski says the best forecasting method may be the one that’s ruled for much of the decade. “Take the average of everyone’s best guess,” he says, “and add 30%.”

Perhaps I’m just cynical, but it’s hard for me to feel good about the analysts finally getting in the same zip code as the actual prices. (And yes, I’m assuming for the moment–but not predicting–that these projections above $80 and $90/barrel for 2008 will be pretty close to the mark, which is, in turn, a prediction of no new war or terrorism attack or hurricane in the wrong part of the Gulf of Mexico.) Their consistent underestimation of the price of oil has only slowed our response and transition away from that particular fossil fuel. While I’m not accusing them of doing that on purpose, the fact remains that that’s been the net effect of their inadvertent bias.

This article and the whole “what did they know, and when did they know it” issue is particularly interesting today, as just 24 hours ago I was at a party and spent several hours talking to someone with amazing contacts in the world of energy and US politics. I had just met this person, an out-of-town relative of a good friend, who told me directly that the view in Places That Matter is that the worldwide oil peak is coming in 2012. (Note to Chris Skrebowski: Neener, neener–missed it by a year.)

How credible is this source? I found the discussion very convincing because of the person’s contacts and extremely deep and broad knowledge of sustainability issues, plus the connection to my friend. (There’s no way this person would have made up the business and political anecdotes with a sibling within earshot.) Still, I’m sure you can find people speaking from an equally impressive context who will tell you that Exxon is right and there’s no peak in sight until after 2030. All I can say is that throughout the entire conversation the needle on my journalist-precision bullshit detector never moved off zero.

I’m not about to do anything as insane as making price predictions for oil or any other energy-related commodity, but I will tell you how this all feels to me: Like the deeply disturbing scene in a jungle movie when an immense boa constrictor, already wrapped around its prey, suddenly tightens its grip, the coils of its body just perceptibly sliding past each other.

Perhaps that’s not so much my cynicism as it is the fact that I’m sitting here after 11PM on a Sunday night with a crushing, four-day sinus headache, reading yet another article about what’s headed our way on the oil front with no sign that mainstreamers have any clue whatsoever what’s going on…