WSJ shows how oil analysts keeping getting it wrong
It’s amusing to see analysts at high-powered, influential financial-services companies continue to predict what oil will do, following its 55-percent plunge from June to early February.
Here’s a news flash: Nobody knows what it’s going to do: whether the price will spike again, and if so, by how much. They were wrong in the last half of 2014, and some of them are sure to be wrong even as we speak.
The Wall Street Journal’s Alexandra Scaggs looks into specifics ($$), leading with the recommendations of Raymond James & Associates analyst Pavel Molchanov. In late November, with oil already down 30 percent from June, he issued a report saying oil prices and energy stocks were “within weeks of bottoming.”
He and his colleagues maintained the equivalent of a “buy” recommendation on Houston energy producer Southwestern Energy Co., also down about 30% since June. … More than two months after Mr. Molchanov made that call, it is clear he and many other analysts were wrong. Nymex crude prices and Southwestern Energy’s stock each have fallen more than 20% since Thanksgiving.
What does Molchanov say now?
“It’s a little late in the game to downgrade stocks on oil going down, because oil’s already gone down,” said Mr. Molchanov. But “commodity prices are almost impossible to predict in the short run.”
As the story notes, often analysts have waited until very late in the game to recommend against holding energy stocks. Molchanov’s colleagues at Raymond James didn’t downgrade Southwestern Energy’s stock until Jan. 6.
Reed Choate, portfolio manager at Neville, Rodie & Shaw of New York, says: “Analysts are always optimistic.” But “this was a big miss.”
Arun Jayaram, an analyst for Credit Suisse Group AP, added: “In an ideal world, as an analyst you anticipate moves.” But “it’s difficult.”
You’d figure that such analysts, chastened by their bad moves, would be a little less enthusiastic. Nope.
Mr. Molchanov of Raymond James thinks the sector could begin a lasting recovery in the second half of this year. The firm forecasts Nymex crude will sell for an average $62 a barrel this year. “The recovery will take time,” he said. “Then, naturally, there’s going to be a bounce in most oil stocks.”
Maybe. Oil has certainly climbed back upward a bit the past week, but it could just as easily slip back as march upward.
What consumers need, instead of expensive guesses and uncertainty, is a steady cost structure they can count on when they build their household budgets. And the best way to achieve that kind of stability is by introducing choice into the transportation-fuels market.