The Future of Oil Prices
One of the topics which I have been following for the past couple of years is “Peak Oil”, the theory that global oil production will soon peak, imposing vast changes on the social and political world order. I find it a great test case for the issues we have been discussing here. The issue brings widespread disagreement, and it’s one where knowing the truth is of great importance even for the average person.
A good starting point to get a handle on the situation is to look at what commodities traders call a “futures strip” for oil prices. Here’s a chart I created showing the prices of oil futures contracts from January 2007 through December 2012 as of the close of trading yesterday:
The obvious message of this chart in terms of future oil prices is that they are expected to be relatively stable. The whole next six years stay within the range of $60-$70 per barrel. This is unlikely to be consistent with a significant oil shortage in that time frame. The markets seem to be telling us that Peak Oil is not a near-term concern.
How did the markets do?
https://quitter.se/notice/1...
**edit** hint: there are only 2 crossings of reality and prediction.**edit 2** my data was on log scale. Near-term (for about a year) the futures market was roughly accurate...then they started diverging...inflation?
https://quitter.se/notice/1... opposite effect occurs: prediction vastly overshot real cost
A very confusing conversation. Giving Perry E. Metzger the benefit of doubt perhaps he and Hal Finney were talking about two separate things. "Volatility" to the average uninformed person like me could either mean the change in the price of a commodity from now until the settlement time, or it could mean uncertainty in the future price. Without having read the followup entry, I think there are several conclusions one could have made from this discussion:
1) The original post unconsciously assumed that oil spot prices will continuously increase, at whatever rate, once oil production peaks, in other words that other factors would not affect that upward trend2) The expected spot price of a commodity in the future is affected by exactly the same factors as the price of a futures contract for that commodity, so they are the same thing3) Various complicated things affect the prices of relatively low-priced metals that are not meant to be stored in bulk, such as aluminium, which may cause downward trends contrary to interest rates/inflation4) Highly valued commodities like gold will have upward-trending futures as they have relatively low storage cost so are not sensitive to transient supply or demand issues around the world5) the downward bend in oil was due either to an initial partial payment by the buyer (and thus loss of interest), or an expected decrease in demand due to alternative sources of energy, or (most likely) to a reduction of supply issues that led to the predicted spike; but was most definitely not due to any "long-term storage costs" which only affect the linearity of a futures market with respect to its current price. For a commodity with low storage costs future demand will cause a large shift in current price which reduces the future spikyness, while for high storage prices it is smoothed mostly by changes in demand or supply which leads to more spikyness such as in natural gas.