The Fuse

#OilPriceBet Captures Oil Market’s Uncertainties for 2018

by Leslie Hayward | January 05, 2018

An informal wager on oil prices conducted on Twitter among energy journalists and analysts (with yours truly as the arbiter) reflects the lack of consensus over the direction oil prices will take in 2018. Predictions submitted in the last week of 2017 on the closing price of ICE Brent on December 31, 2018 fell within a $42 per barrel range, with a low bet of $39 (from Michael Webber, a professor at the University of Texas at Austin) and a high bet of $81 from 2017’s winner, Chris Nelder, Mobility Manager at Rocky Mountain Institute and host of the Energy Transition Show podcast.

Now in its fourth year, the rules of the price wager have remained consistent and straightforward.

  • There is a window at the end of each year during which bids can be submitted. Bets are submitted privately and made public at the beginning of the New Year.
  • Bids are accepted through direct message to @leslietron during this time. Follow reciprocity can be requested via tweet mention to enable direct messaging, but bids submitted by tweet are not included in the final list. There are two reasons for this rule. First, many have assumed they were participating by tweeting their wager, but I simply can’t follow every posts on Twitter every day. Second, the game was designed as a blind bet from the beginning.
  • The closest bet wins—it’s not “Price is Right” rules.
  • Once the winner for the year is confirmed, losers are obliged to buy the winner a drink if and when they see him or her in person. The 2017 wager included a generous and unprecedented bonus—Michael Liebreich of Bloomberg New Energy Finance offered to donate $1,000 to a charity of the winner’s choice.

How it began

The original idea was offered in December 2014 by Ed Crooks of the Financial Times, in a conversation with Chris Nelder about the direction of oil prices in the coming year. The original participants—Steve LeVine of Axios, Russel Gold of the Wall Street Journal, Keith Johnson of Foreign Policy, Ed Crooks, and Chris Nelder—established the rules and sought a neutral bid-keeper to avoid any participant from having a strategic advantage. At the time, I was managing the @Securing_Energy Twitter account and offered to do so.

Estimates emerged within a $37.25 spread. One year later, and following a mid-year writeup from NPR’s Scott Tong which revealed that two of the participants had mistakenly believed they were betting on the price of oil on New Year’s Eve 2014, oil prices had slid far below the range—closing at $37.28 on December 31, 2015. Steve Levine was the winner with a bet that was $20 higher than the settlement price.

History repeated itself the following year. The spread emerged within a much tighter $15 range, with Chris Nelder and Keith Johnson at the high end and LeVine again at the bottom. Brent closed the year at $56.82, making LeVine the winner with a bet significantly above the oil price for the second year in a row.

Brent 12/31/16:

@stevelevine 65

@Ed_Crooks 66

@russellgold 72.50

@chrisnelder 80

@KFJ_FP 80.01

Last year’s wager was opened to additional participants. All but two of the wagers fell within a $15 range, but the full spread was $40.55. Crooks, Johnson, and Gold were within the middle, while LeVine was the second highest bid—shifting from his previously bearish strategy.

final brent

Brent closed at 66.87 on the last trading day of the year, making Chris Nelder the winner over Columbia University’s Jason Bordoff by a margin of 26 cents.

There are similarities between last year’s bets and the wagers for 2018. The number of participants has grown, but the majority of bets are concentrated within a narrow range—creating challenging odds for many participants, who now represent leading trade publications, analysis firms, academic institutions, and international NGOs.

Approaches vary

While no justification for predictions is required to participate in the bet, commentary or explanation is often submitted publicly or with the wager. Morgan Bazilian said, “My model description at a basic level:  Simulations were run on the Peregrine supercomputer at NREL. That was needed not for the Brownian motion-based algorithms, but to incorporate geospatial data from NOAA’s VIIRS satellite instrument. It then incorporates North Sea infrastructure constraints to get to the Brent price.”

Conversely, others submitting bids have noted that their predictions are  a “total crapshoot.”

Nelder penned the following explanation last year for his winning bid.

nelder explanation

LeVine also has a strategy. He says, “I always listen to Ed Morse, who was a bear. So I knew prices were going to drop, and I took the peak price and cut it in half, and that was my bet (I think $57.50). The next year, Ed was still bearish, so I added a few dollars.” As two-time winner, LeVine clearly owes Ed Morse a drink.

Based on the popularity of #OilPriceBet, there’s another opportunity to engage with the new #EVSalesBet, which begins this year and accepts wagers on the number of electric vehicles that will be sold in the United States in 2018.