On January 4, 2010, the price of a barrel of WTI crude was about $81.
As a result Madjd-Sadjadi mailed South a check for $1,242.
Will the "real" price of crude oil rise or fall by the end of this decade? That is the question.
David South (Professor,
The following was written soon after The Economist article on "The Next Shock?"
If Julian Simon were alive today, I would challenge him to a bet. This time,
instead of betting of wood, I would bet against
historical trends and bet on the price of crude oil. For decades now the price
of oil has been getting less and less expensive. Today (Feb. 1999), it is the
cheapest it has been it in 50 years! If I had made a 30-year bet on oil in
1970, Simon would have won and I would have lost. If I had made a 10-year bet
in 1989, Simon would again have won. Past trends in the price of oil since 1980
certainly support Simon's view. Even so, I now am crazy enough to make an
11-year bet on oil. I bet that on
Notification of this proposed bet was made on page 6 in the
The editors of The Economist later admitted they had it wrong when they made a forecast of $5/barrel "soon."
Eighteen months have passed and no economist or journalist
has taken me up on the $12/barrel bet. But Dr. Zagros Madjd-Sadjadi
is willing to take up the Julian Simon flag and bet on the future price of West
Texas Intermediate crude. Dr. Madjd-Sadjadi
bets the price will decline by more than 16% over the next decade [from
$30/barrel (October, 2000) to less than $25/barrel (
Some of the logic supporting a price less than $25/barrel in 2010 can be found in the articles below.
will we run out of oil? Never!"
"The best way to forecast price trends is to study past price trends,..."
Curtis Rist published "Why we'll never run out of oil" in the June 1999 issue of Discover Magazine.
[ note: South wrote letter to the Editor of Discover Magazine to make a $12/barrel bet on the price of oil in the year 2010.]
“But the "sky-is-falling" school of oil forecasting has been systematically wrong for more than a generation.”
Quote and graph above from "Stop Worrying About Oil Prices" By Mark Mills
Data adjusted to constant dollars by Dr.
The rationale for a $25/barrel price over the
original $12/barrel price bet ( page 6 in the
LOGIC FOR INCREASING PRICE OF OIL FROM 1999 to 2010
During the next 10-years, the demand for oil will increase as the world population increases.
During the next 10-years, the world’s oil reserves (known + unknown) will decline.
During the next 10-years, I predict economists and
During the next 10-years, those who are concerned about the environment will object to opening preserves and other areas to oil exploration. Many will also object to building additional nuclear power plants. Some will even object to building new natural gas power plants. Some will object to developing methane-hydrides as an energy source.
Many politicians and many citizens will put off investing in
alternative sources of energy until a ‘crisis’ situation arises and
then they will place blame on others for not supplying the U.S. with enough of
their resources. For example, the oil ‘crisis’ of the 1970’s
has done very little to encourage the
At the 1998 rate of production, total OPEC reserves represent 79 years of supply.Non-OPEC reserves at the start of 1999 were 234.2 billion bbl. At the 1998 rate of production, non-OPEC reserves represent only 16.6 years of supply.
Demand growth is expected to be strong. And although there will be additional production capacity added over the forecast period, it is not expected to keep pace with demand. That will reduce the level of worldwide excess capacity and reduce potential downward pressure on prices.
South tends to believe the forecasts of geologists more than economists who say that oil is an ‘unlimited’ resource.
NOTE: Rolling blackouts occurred in
12/14/07 Message from Dr. Zagros Madjd-Sadjadi:
I thought you might like to see a Wall Street Journal article on the price of Oil (hey, they might be the only ones who agree with me right now, but I really think that we have a speculative bubble right now). I recently was speaking to an audience about speculative bubbles and the discussion turned to our bet on oil. I told them that the longer the current oil bubble lasts, the more likely it will burst and fall and then we will see the inevitable OVERCORRECTION (hopefully bursting in about 18-24 months from my own financial perspective--LOL), which based on past falls will probably take oil down to $20-$30/barrel:
$100 Oil Can't Float
Justifications for the Price, Like Supply and the Dollar, Crumble Under Economics
By CYRUS SANATI
November 8, 2007; Page C14
With oil flirting with $100 a barrel, there seems to be no stopping the dizzying ascent of black gold. In such a frothy market, it may seem old-fashioned to talk about supply and demand. But they and other fundamentals give a clear message: The price is too high to be sustainable.
There are 10 solid reasons why:
11/13/07 Message from Dr. David
If you go to John Tierney’s blog, you will see the following post.
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Some related humor..... from JOKES ABOUT ECONOMISTS AND ECONOMICS
An economist is a trained professional paid to guess wrong about the economy. An econometrician is a trained professional paid to use computers to guess wrong about the economy.
An econometrician and an astrologer are arguing about their subjects. The
astrologer says, "Astrology is more scientific. My predictions come out
right half the time. Yours can't even reach that proportion". The
econometrician replies, "That's because of external shocks. Stars don't
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