The Impact of the Institutional Environment on the Forecasts in Petroleum Industry (McKinsey&Company Case Study)

Forecasting oil supply represents a highly difficult task. Firstly, it is hard to define physical presence and availability of resources, and count profitability of their extraction. Secondly, the researcher faces the problem of finding necessary data. And finally, forecasting models can not take into account all the factors that influence oil production.The purpose of this study is an attempt to define the reasons why the forecasts do not match the real situation in oil sector and an attempt to determine and analyze the factors that have the most significant effect on theoretical oil supply forecasts.In this paper in order to achieve the goal described above, it is necessary to complete the following tasks:•To study existing forecasting models and mark out their special features•To analyze current state of oil sector and to compare the results of long-term forecasts made by the BP, the U.S. EIA and the REI of the RAS•To make a comparative analysis of theoretical forecast of McKinsey&Company(1999-2009) with the real situation in 2009 and with current situation as well, to determine key factors that caused methodological errors in this forecast.As a result of the research the author discovers the following:•The geophysical models do not take into account economic factors and the econometrical models that consider more factors still do not take into account ones reflecting technological dynamics and etc. Although there exist methods that consider both geophysical factors and economic situation, the forecasts are not accurate. The influence of some factors is very difficult to take into account, especially of institutional factor.•The forecasts, considered in this study, in fact are based on the same suppositions, even though the specialists use different methods to predict oil supply. None of these forecasts consider the influence of consumers' attitude.•Institutional factor has different impact on the evolution of the oil sector depending on the country and forecast period. As for Russia, it does not play the crucial role in oil industry dynamics, but successful development of institutional environment can accelerate the quality growth of Russian oil industry.