Only Liberals Could Believe Government Good at Predicting Prices

Conn Carroll / July 16, 2008

Whenever conservatives push for developing more domestic energy, liberals respond by saying increased oil production, whether from the Outer Continental Shelf (OCS) or Arctic National Wildlife Refuge (ANWR), would have no effect on prices. And they always trot out the same Energy Information Administration reports predicting that opening up ANWR would decrease the price of a barrel of oil by only 41 cents by 2026. For liberals, such precise predictions of commodity prices decades from now only build faith in the government’s numbers.

Conservatives know better. Conservatives know that if the government were any good at predicting prices, then communism would have worked. Well, guess what: Communism didn’t work, and the EIA can’t predict oil prices any better than a monkey with a dart. No … the monkey would be better.

For example, in 2005 the EIA made prediction for oil prices for every five years extending through 2025. On the low end, the EIA predicted the average cost of crude oil “will close at $33.99 at the end of 2005, drop into the $20 to $30 price range in the next 20 years and then close at $30 in 2025.” And EIA’s high-end prediction: “oil prices will close in 2005 at $43.63, then range between $30 and $37 the next 20 years and close at $35 in 2025.” On Monday the price of oil closed at $145 a barrel. So the EIA was only off, at the least,  by 392 percent.

Back in the real world, markets yesterday reacted extremely positively to President Bush’s push to open drilling in the OCS. The Corner‘s Larry Kudlow reports:

Today, at a news conference, Bush repeated his new position, and slammed the Democratic Congress for not removing the congressional moratorium on the Outer Continental Shelf and elsewhere. Crude-oil futures for August delivery plunged $9.26, or 6.3 percent, almost immediately as Bush was speaking, bringing the barrel price down to $136.

Now isn’t this interesting?

Democrats keep saying that it will take 10 years or longer to produce oil from the offshore areas. And they say that oil prices won’t decline for at least that long. And they, along with Obama and McCain, bash so-called oil speculators. And today we had a real-world example as to why they are wrong. All of them. Reid, Pelosi, Obama, McCain — all of them.

Traders took a look at a feisty and aggressive George Bush and started selling the market well before a single new drop of oil has been lifted. What does this tell us? Well, if Congress moves to seal the deal, oil prices will probably keep on falling. That’s the way traders work. They discount the future. Psychology and expectations can turn on a dime.