Forecasting future economic and oil industry activity can be challenging.
As we have experienced over the past decade, and even over the past few months, economic conditions in the industry can change rapidly. Forecasts that once appeared very logical can quickly become significantly off the mark for a variety of reasons. This calls into question the reliability of economic forecasts.
There has long been a discussion about whether economic forecasting is truly a science or more an art form. Scientific methods and mathematical formulas can be used in developing a forecast. Mathematical analysis is now used extensively in the economics profession, and that brings economic forecasting closer to being a science.
But not all economic relationships can be easily quantified, and mathematical formulas can often lead projections astray.
Shifting landscape
Many of the events that affect an economic forecast are not quantifiable.
It can be very difficult to evaluate the likely effects of shifting political attitudes in the myriad regions and countries of the world. Similarly, the weather is fickle and almost impossible to forecast accurately over a long period.
Weather is usually dealt with by simply projecting the long-run average. But unpredictable political events often create a barrier to constructing a strictly mathematical forecast. So the economist must look to his or her more-artistic side and paint an economic picture based on an intuitive and educated understanding of economic relationships and an awareness of current political events.
The economist must have an artistic feel for how the various parts fit together in order to create a picture of some value. But this is more of a practical, utilitarian art form than a freestyle or abstract form.
Science vs. art
Some may say that calling economics art is stretching the definition.
The economic picture that a forecaster paints does not have the creativity of modern art. It is more a combination of logical and mathematical economic relationships and an awareness of the implications of less concrete factors. But the forecasting economist must have the ability to blend all of these elements into a finished picture that is useful and can be the basis for decision-making.
A forecast that can reliably be used for planning and investment analysis must be logical and well-constructed. And the pieces must fit together. So maybe economics should be labeled "logic art" or "jigsaw-puzzle art."
A word of warning, however: It is highly recommended that the logic and the underlying assumptions be checked before buying a piece of economic "art," and it is further suggested that all of the pieces are checked to see if they fit together smoothly and have not been forced.
As with all art forms, beauty is in the eye of the beholder. Check out the latest OGJ 3-Year Forecast, beginning on p. 49.
The artist thinks it's one of his finest masterpieces. Let us know how you like it.
