Price Forecasts vs. Futures: A Reserves Evaluator’s Perspective
Editor’s Note: While VISAGE rebranded to VERDAZO in April 2016, we haven’t changed the VISAGE name in our previous blog posts. We’re proud of our decade of work as VISAGE and that lives on within these blogs. Enjoy. Guest Blog by: Tyler Schlosser, P.Eng., Director of Commodities Research, GLJ Petroleum Consultants Using VISAGE linked to GLJ’s pricing database, we can quickly plot past Brent Crude forward curves (the purple lines) along with historical prompt month prices (the black line). This demonstrates how responsive forward curves are to current market sentiment. While forward curves do not truly represent spot price forecasts, they do tell us the prices that market participants are willing to agree to today for delivery in the future, and are often compared to industry forecasts. It can be seen that following dramatic changes in prompt month oil prices, the whole forward curve often shifts up or down in a big way. In contrast to the often volatile futures pricing, the purpose of GLJ’s price forecast (green line) is to provide a reasonable basis for the valuation of our clients’ oil and gas assets. When big swings in prices occur, it is important for us to make a measured...