Oil Prices

Treasury written question – answered on 12th July 2006.

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Photo of John Hemming John Hemming Liberal Democrat, Birmingham, Yardley

To ask the Chancellor of the Exchequer what oil price his Department predicts for each of the next 10 years.

Photo of John Healey John Healey The Financial Secretary to the Treasury

The Treasury does not make detailed predictions of future prices. In projecting the public finances, the Treasury adopts an oil price assumption based on the average of independent forecasts, which is set out in PBR and Budget documents. This assumption was audited by the Comptroller and Auditor General in December 2005, when he concluded that:

"There is no clearly better method available for use in the future, though large uncertainties in predicted oil prices remain"

(http://www.hm-treasury.gov.uk/media/F5D/46/pbr05_ nao_508.pdf).

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mike page-jones
Posted on 17 Jul 2006 11:27 am (Report this annotation)

"If the average of independent forecasts shows a fall in the oil price, that price in real terms will be used for the remainder of the five year forecast period. If the average of independent forecasts for one year ahead shows a rise, then the previous convention that oil prices would be close to their current levels in nominal dollar terms over the coming year, and remain flat in real terms thereafter, will be adopted."
Humm. Well, this may well be an excellent method for assesing tax incomes from oil -it will safely underestimate if the price goes up, and follow a down trend.
However, I hope there is another method used elsewhere, if an estimate erring on the high side is needed, for example predicting the future cost of transport, aircraft use and so on, and even the likelihood of triggering recession. I would rather like to know how that is considered, given declining oil and gas fields in the UK (and worldwide) .
regards M.