The ART Of Business

The Biggest Surprise About $2 a Gallon Gas

Reading is a large part of what I do for a living.

Each day I have the opportunity to spend 2-3 hours going through books, trade journals, magazines, newspapers and digital outlets.

In the coming weeks, many of these publications will be filled with “expert” predictions about what we should anticipate for next year and beyond.

The overwhelming number of those forecasts will be quite wrong.

It jives with what Nobel Prize-winning economist Daniel Kahneman observed about predictions:

“Most successful pundits are selected for being opinionated, because it's interesting, and the penalties for incorrect predictions are negligible. You can make predictions, and a year later people won't remember them.”

As we plunge towards $2 a gallon gasoline, it strikes me that nothing in the volumes I’ve read over the past few years ever predicted this reality.

In fact, the overwhelming consensus was in the other direction.

That is, as the economy recovered, the conventional wisdom held that oil prices would naturally stay stable around $95 a barrel; or, maybe even rise, depending on geopolitical factors.

With all of the instability in the Middle East, coupled with Russia’s muscle flexing, and U.S. growth now approaching 4%, the formula seemed solidly in place for a “new normal”. Oil near $100 a barrel was our destiny.

What no one predicted- to my knowledge- was the impact both hydraulic fracturing and governmental policies would play in altering the landscape.

In one of those moments of near-perfect synergy, these two factors came together to simultaneously increase supply and reduce demand.

Just when we're convinced that we know what will happen, human creativity and complexity combine to throw us a curveball.

The next time you fill-up the tank, maybe take a moment to remind yourself that predictions only exist for our entertainment.

And, moreover, as Casey Stengel got so right: “Never make predictions, especially about the future.”

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