Fleet Management News & Business Info | Commercial Carrier Journal
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JOURNAL TRUCKGAUGE Why even bother? EIA's diesel price forecasts are faulty, but that's to be expected BY AVERY VISE L ast month's column discussed an example of federal government forecasting that has proven unreliable. In 2002, the Bureau of Labor Statistics predicted that by 2010 the nation would have 2.1 mil- lion drivers of heavy trucks. In fact, BLS was off by nearly 500,000; we had 1.6 million truck drivers in 2010. But you can't fault BLS entirely for failing to predict the scope of the Great Recession, a period during which trucking companies cut about 225,000 jobs instead of continuing to grow at a steady rate. while the July 2008 forecast greatly over-predicted them. While this might be the most extreme exam- ple of EIA's inaccurate forecasts, it certainly is not the only one. The January 2008 outlook wildly under-predicted diesel prices, EIA forecast diesel price vs. actual JANUARY 2008-DECEMBER 2009 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $0.00 There's at least one fed- eral forecast that seems to be correct only when nothing changes: the Energy Informa- tion Administration's monthly short-term energy outlook on diesel prices. The EIA report covers a whole host of energy types and looks not just at price but also supply and other crite- ria, so perhaps other elements of the outlook are meaningful. But EIA's price outlooks tend to be straight-line extensions of the current price with perhaps some seasonal fluctuations added. Consider the latest monthly J F M A M J J A S O N D J F M A M J J A S O N D 2008 2009 JAN 08 FORECAST JUL 08 FORECAST ACTUAL report issued on May 8. The outlook for the rest of the year ranges between $4.07 to $4.11 a gallon. Most trucking companies would be thrilled to see that kind of stability in diesel prices. But the whole notion of forecasting the price of diesel, gasoline or crude oil is flawed fundamentally because the petroleum markets are so sensitive to unpredict- able events. Forecasts issued immediately before Hurricanes Katrina and Rita in 2005, the unprecedented price surge in 2008 and last year's political unrest in the Middle East and North Africa instantly were null and void. EIA's January 2011 short-term outlook predicted that the average price just two months later in March 2011 would be $3.37 a gallon. In fact, the aver- age price for March 2011 was $3.90 – a difference of 53 cents a gallon. One of the most dramatic examples is 2008 and 2009. In January 2008, EIA forecast diesel prices for July 2008 at $3.28 a gallon. The actual number? $4.70 a gallon. 24 COMMERCIAL CARRIER JOURNAL | JUNE 2012 That's a $1.42 difference. EIA then adjusted its outlook, of course. So the agency's July 2008 outlook predicted consis- tently high prices through 2008 and into 2009, moderating only in the fall of 2009. The July 2008 forecast for December 2009? $4.21. The actual December 2009 average? $2.74 – $1.47 lower. No, you can't expect EIA or the U.S. Department of Energy to predict devastating hur- ricanes in the heart of refinery country, apparent speculation in petroleum markets or open rebellion in some of the most important petroleum-producing nations on Earth. That's not the point. Rather, the point is that stuff happens. And even when stuff doesn't actually happen, markets move because people are frightened that stuff might happen – as appears to be the case earlier this year regarding tensions with Iran over nuclear weapons technology. So EIA probably is not remarkably bad at forecast- ing. Instead, regardless of EIA's abilities in this area, it seems that forecasting diesel prices is a waste of time. AVERY VISE is executive di- rector, trucking research and analysis for Randall-Reilly and senior editor, industry analysis for Commercial Carrier Journal. E-mail avise@truckgauge.com.