It has been less than three weeks since the DOE issued its Short Term Energy Outlook (STEO) for October, but prices moved further in those three weeks than they have in the past three months. For instance, October was the first month in which the DOE released confidence intervals for the major commodity contracts.
The two CI’s (95% and 68%) were meant to demonstrate the confidence with which we could expect prices to trade within a certain band. But in three short weeks oil prices have increased to such a degree that the DOE’s STEO prices are already touching the lower confidence interval – that is, we can now be 68% sure that the December contract’s prices will be higher than the DOE’s original forecasts.
For instance, the DOE’s lower 68% confidence interval on October 1st for the December contract was $57.69. The current lower bound for the same contract is $70.43. Further out, the April 2010 contract had an expected 68% confidence interval of ($51.77, $96.30), now it’s shifted upwards to ($63.54, $108.18). Overall, the upper bound has increased from an average of $99.73 to $112.21 (See Chart of the Day in today’s issue of The Schork Report).