It seems like only yesterday we were cashing out Junior’s college fund to fill up the Buick, but now this:
Gulf Oil CEO Joe Petrowski said on Wednesday that the price of oil could sink to $20 per barrel, and there is a chance gasoline prices could drop as low as $1 per gallon by early next year.
Remember when gas was over $4 a gallon and every panic-inducing “analyst” who takes joy in looking at an ascending line on a graph and drawing it into infinity was saying that oil would end up at over $200 a barrel within a year?
That’s the danger in making assumptions that all trends will continue forever, because they never do. This is the same reason that people a hundred years from now will be laughing at everybody who fell for Al Gore’s “chart of doom.” I could look at the temperature rise between January and June and assume that by November it’s going to be 350 degrees in Detroit.
Analysts relish in the practice of assuming that something trending on the rise will continue forever, but they don’t do the same thing for something trending in decline because the idiocy in this method is made obvious much sooner.
Consider oil prices. Using Al Gore’s “line to infinity” method of predicting futures, we should be able to say this: If gasoline prices continue to decline at the current pace, pretty soon the gas station will be paying us to put gas in our cars.
Of course, making that assumption with a descending line is ridiculous, right? No more ridiculous than those who make the same predictions with a rising line on a graph. This holds true for the cost of a barrel of oil, grocery prices, or temperatures.