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EMF OP 34: Oil Price Forecasting During the 1980s: What Went Wrong?

This paper reviews forecasts of oil prices over the 1980s that were made in 1980. It identifies the sources of errors due to such factors as exogenous GDP assumptions, resource supply conditions outside the cartel, and demand adjustments to price changes. Through 1986, the first two factors account for most of the difference between projected and actual prices. After 1986, misspecification of the demand adjustments becomes a particularly troublesome problem.Reprinted in 1994 from Energy Journal, June 1994, 15(2), pp 1-22 (feature article also published in The Economics of Energy, edited by Paul Stevens, Northampton, MA: Edward Elgar, 2000).