Grading Our 2018 Energy Predictions

I had intended to grade my 2018 energy predictions before now, but one of them wasn’t decided until the last day of the year. After the stock market closed on December 31, I was finally able to grade the five energy predictions I made at the beginning of the year. 

I was correct on four predictions, and missed on the fifth by a single trading day. Here are the details.

1. The U.S. will break its all-time oil production record.

In October and November of 1970, monthly U.S. oil production exceeded 10 million barrels per day (BPD) for the first time. In the next 47 years, monthly production never again reached that level. But that record has now fallen.

Funnily enough, the record had already been broken when I made this prediction, but it just hadn’t been announced yet. Early in 2018, the U.S. Energy Information Administration (EIA) announced that the previous monthly record for U.S. crude oil production — 10.044 million BPD set in November 1970 — had been broken. U.S. oil production continued to rise steadily throughout 2018, reaching 11.475 million BPD by September 2018 (the last month for which monthly numbers are available).

Weekly production reached 11.7 million BPD by late December. I also asserted that the previous annual record, 9.637 million BPD, would fall. We won’t know the final numbers for a couple of months, but weekly production numbers have averaged 10.8 million BPD through mid-December. So the annual record will fall when the final numbers are posted.

2. Oil prices to reach $70 per barrel.

The price of oil opened the year at $60/bbl, after recovering from the ~$40/bbl level in 2017. In early 2018 there were plenty of people predicting that prices would fall, but I predicted prices would reach $70/bbl in 2018.

There were several reasons I expected oil prices to rise. The threat of sanctions on Iran, global demand that continues to rise, and the deteriorating situation in Venezuela were just three of the reasons I predicted higher oil prices.

The price of West Texas Intermediate (WTI), the U.S. benchmark, rose above $70/bbl in May and remained there for most of the summer. So, I got the prediction right, but I didn’t anticipate the oil price collapse that would follow.

3. For the first time since 2014, the average Henry Hub spot price for natural gas will be above $3.00/MMBtu.

Natural gas prices have been depressed for several years, but natural gas inventories opened the year lower than normal. I originally intended to predict that natural gas prices would spend the year trading in a range of $2.50 to $3.00 per million British thermal unit (MMBtu), which they did for the most part, but I decided to make the prediction a bit more aggressive than that. Primarily on the basis of lower inventories, I predicted that the average price would be over $3.00/MMBtu.

That prediction wasn’t panning out very well through September, but then the price finally responded as natural gas inventories continued to drop. By November, natural gas prices got close to $5/MMBtu, which helped push the average daily closing price to $3.16/MMBtu for the entire year.

4. U.S. gasoline demand will set a new record high.

I got a number of emails about this prediction. Some readers were certain that 2018 would be the year that electric vehicles (EVs) sent U.S. gasoline demand into permanent decline. One person went so far as to suggest that I was delusional to expect higher gasoline demand in 2018.

Well, guess what? I wasn’t delusional. Prior to 2018, the highest weekly gasoline demand ever recorded was 9.846 million BPD in August 2017. But 2018 saw weekly demand exceed that number five times. The highest number recorded was 9.899 million BPD in August 2018.

On an annual basis, 2018 also saw the highest gasoline demand on record. In 2018, annual gasoline demand reached 9.33 million BPD, beating the previous record of 9.26 million BPD set in 2017.

5. Shares of Tesla will close the year lower.

This is the prediction that went down to the final trading session of 2018.

I made this prediction understanding that shares of electric vehicle car maker Tesla (NSDQ: TSLA) often trade wildly out of sync with the company’s underlying fundamentals. Tesla CEO Elon Musk has shown an ability to sharply move shares based on comments that often have no basis in reality.

Nevertheless, fundamentals usually win out in the end, even though it can take a long time.

Tesla went on a wild ride in 2018. Shares opened the year at $312.00, and rose as high as $387 following comments from Musk that he had secured funding to take the company private. He hadn’t, and the subsequent fallout and news of an SEC investigation dropped shares all the way to $245. In fact, I received a congratulatory note at that point from someone who felt this prediction had been secured.

That was premature, however, and shares bounced back once Musk settled with the Securities and Exchange Commission (SEC), and following better-than-expected third quarter earnings.

But with less than a week to go in the year, shares were trading under $300 a share. Then on December 28, the second to last trading day of the year, shares surged when it was announced that Larry Ellison, founder of software giant Oracle (NYSE: ORCL), would be appointed to Tesla’s board as part of the company’s settlement with the SEC.

Shares surged well above $300 on the news, and closed on December 31 at $332.80, 6.7% higher than they opened the year. Thus, I missed on this one, albeit just barely and in typical Tesla fashion — as a result of a flashy announcement that caused the share price to surge.

I would add that on January 2, 2019 — the first trading day of the new year — Tesla shares again plunged after missing Wall Street’s delivery estimates for vehicles. Shares closed on January 2 at $310.12, once again below the level of a year ago. I missed this prediction by one trading day.

All in all, a good showing for 2018. 

In the next article, I will offer up my energy predictions for 2019.

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