[extropy-chat] Peak Oil news

Hal Finney hal at finney.org
Wed Mar 8 02:02:55 UTC 2006

Samantha writes:
> Actually I don't need to do so in order to make the point I did make  
> which is that the behavior of the market regarding oil futures is not  
> at all adequate to judge whether Peak Oil theory is valid.

Actually, I basically agree with this as written.  As I tried to show,
the behavior of futures markets right now is not inconsistent with the
possibility of near-term Peak Oil.  Market volatility allows for a wide
range of futures pricing, and prices could easily climb above $100 or
even as high as $180 or so.  Likewise the FX market sees a good chance
of a substantial production decline in the 2010 time frame.

Where I differ with the Peak Oil believers is that the markets are
also saying that Peak Oil is not a sure thing.  Prices could climb,
yes; but they could also fall.  Neither can be ruled out.  And the most
likely price by 2010 is about $65, suggesting that Peak Oil is not all
that likely.

Not many people are "on the fence" about near-term Peak Oil, oddly,
even though that is how I read the market forecast.  Most people either
see it as very likely or very unlikely.  I imagine this is part of the
general human tendency to be over-confident in our beliefs.

Back to Samantha's comment, I agree with it as written, that current
market behavior is not sufficient to confirm or deny Peak Oil theory.
However I disagree with what I think is her larger point, which is that
markets in general are no good for evaluating this kind of theory.

Markets do a good job of consolidating and synthesizing available
information, both public and private.  Market traders have an eternal
hunger for the best available information, anything to give them an
edge over the competition.  If public information strongly implied the
likelihood of a Peak Oil scenario (as suggested by true believers),
oil markets would not ignore this public information since it would be
a source of profits for investors.  Even private and secret information
affects prices.  If oil industry insiders knew that Peak Oil was about
to happen and prices would rise, they could take long positions in the
futures market, and by these actions they would drive up futures prices.

Many (even most!) Peak Oilers believe that markets are stupid and traders
are blindly ignoring blatantly obvious facts that prove the reality
of Peak Oil.  This is inconsistent with the motivations of all parties
involved.  It is far more likely that Peak Oilers are deluding themselves,
which does not cost them anything and in fact gives them a sense of
importance and signficance, than that market traders are intentionally
closing their eyes to valid information and giving away money as a result.


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