[extropy-chat] Peak Oil news
sjatkins at mac.com
Tue Mar 7 21:49:53 UTC 2006
On Mar 7, 2006, at 12:31 PM, Hal Finney wrote:
> Samantha Atkins writes:
>> The markets, as anyone who plays them knows, are not altogether
>> rational. So I find it unlikely that examining market price
>> structures will give good evidence for or against Peak Oil.
> Yes, the markets are the worst predictors around. Except for
> else. :-)
> The reason markets are a good source of information is so obvious
> that it
> never seems to be written down. Unlike other opinions, market
> are backed up by the hard-earned cash of the people asserting them.
Yes obviously but also No. Markets are full of speculations not
only about the underlying but about the actions and opinions of other
persons and entities in the market. It is a dynamic attempt to model
the likely future behavior of the other players as much as the actual
merits of the underlying commodity. Speculation is rampant across
> Suppose you have a belief about some future event, and then you are
> informed of the market consensus and it is very different from your
> belief. For example, many Peak Oilers agree with oil analyst Matthew
> Simmons that oil will be over $200 a barrel by 2010. Simmons made a
> famous public bet about this a few months ago.
Without some really good news in alternative energy it is imho
certain we will at least see spikes this high.
> Now, the oil futures market price for 2010 oil is about $64, a big
> difference from $200. Once you find out about this discrepancy
> the market consensus and your beliefs, you have two choices.
There is no reason to place an extravagant bet that far out at this
time, is there?
> One is to change your belief to match the market consensus. This is
> what I aim to do.
I don't see any real compelling logic to this.
> The other is to accept that there are positions you could take in the
> market, bets you could make, that have a positive expectation.
> That is,
> you have to believe that the markets are giving away free money. And
> the more divergent your beliefs are from the market, the easier it is
> to find such positions and the greater the profits.
> Right now, for $5,000 you can buy a $100 call option that expires
> in 2010.
> This will be worth 1,000 * (oil price - $100). So if oil does in fact
> go to $200 as those people believe, their $5,000 option would be worth
> $100,000, 20 times their investment.
I would be tempted by that position if I had $5000 I didn't mind
tying up for that long and if I could sufficiently discount the
possibility of a good replacement energy technology in that
timeframe. I would be placing a bet both about the availability
versus demand for oil. Peak Oil does not actually entitle me to rule
out new technology. I would rather trade the $5000 on shorter term
positions. I suspect that many traders feel the same.
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