So roll the tape back three years to this time in 2008, when oil prices were nearing $150 a barrel and gasoline was over $4 a gallon nearly everywhere. The “peak oil” folks were having a field day, and there were lots of predictions that oil was on its way to $200 a barrel. In the middle of this, I threw down the gauntlet to Pat Deneen, professor of political philosophy at Georgetown University. On his sprightly and readable blog, What I Saw in America--inspired by Tocqueville, naturally–he describes himself as “Georgetown political theorist by day, Georgetown political theorist by night. . .” O-kay. Pat is mostly a sensible guy except for his penchant for throwing in his lot with the “crunchy-con” side of things (deploring McMansions, conspicuous consumption, disco revival, etc). Back in 2008 we got into a back-and-forth about “peak oil,” and I finally decided Enough!–let’s have our own Simon-Ehrlich style bet on oil prices: I proposed that within three years oil would be back below $75 a barrel. Well, the three years is up, and Deneen is triumphantly demanding that I pay up!
He’s quite right to do so: oil is sitting right now around $100 a barrel, and a bet is a bet. Though I would note that for much of the time period I was ahead of the game: the price of oil started collapsing from its $150 level shortly after the wager was made, falling below $40 a barrel at one point in the fall of 2008 (before the worst of the recession kicked in). I’ll also note that at the present time, the general consensus is that about $15 to $20 a barrel of the current price reflects the weak dollar (since oil is sold globally in dollars) and not intrinsic market demand, and Goldman Sachs, among others, estimates that $10 of the current price reflects the risk premium of the increased unrest in the Middle East (Libya, etc). Which means that the abstract market price of oil would be about . . . $75 a barrel. I noted a number of these factors last week in my column on oil markets on RealClearMarkets.com.
I note in passing that New York Times columnist John Tierney won his similar bet on oil prices that he made several years ago with Matthew Simmons, one of the chief “peak oil” cheerleaders. Which suggests perhaps that I should have chosen different terms for my bet. Meanwhile, John previously noted here Michael Lind’s article on the bright future of fossil fuels. Related to this is one of my comments to Pat back in 2008:
Meanwhile, I was talking last week with a leading explorer in the natural gas industry, and he is confident that a LOT of domestic natural gas is about to come online, because of the current high prices. He walked me through places and amounts that he has in development in this country, and it is staggering.
Looks like I got that one right. In other words, Pat–you’re still wrong. But enjoy your bet, and the accompanying dinner, which I expect will involve ample quantities of high carbon-footprint beef, and ethanol produced and packaged as God intended it to be.