The Bet

While I won my $1,000 bet on oil prices by a whisker, I know a lot were rooting against me. They should be happy to know that my bad karma is not going to allow me to keep the money. So, the lesson I learned years ago is reinforced: Don't bet.

(*Ed. note: Robert really did miss by a whisker - one trading day - front month crude touched $100 today)


In December of 2006, there was a lively discussion here about what would happen with oil prices in 2007. Although almost everyone felt that oil prices would rise, some argued that oil prices would rise to $100 by the end of 2007. A major reason for this belief was that Saudi Arabian oil production was declining at the time – and many felt like this meant that oil production in Saudi Arabia had peaked.

While I felt that IF Saudi production continued to decline, we would certainly see oil prices go to $100, I didn’t think it likely that they were experiencing involuntary decline. Therefore, I offered to bet $1,000 that we would not see oil reach $100 before the end of 2007. I offered this as a single bet of $1,000, or 10 bets at $100, or anything in between. For a couple of weeks I had no takers, but then on 12/21/06 (incidentally my 40th birthday) I received an e-mail from someone offering to take the entire $1,000 bet.

A bit of negotiation ensued to make sure that we were very clear on terms and definitions. The terms of the bet were: If front month WTI reached $100 at any point in 2007, I would immediately pay off $1,000. If not, then I would collect $1,000 on January 1, 2008. We would not complicate the bet by considering a rising or falling dollar. By January 7, 2007 we had each transferred $1,000 into the PayPal account of Super G.

My expectation was not that oil prices wouldn’t go higher. I have invested with the expectation of consistently higher oil prices for the past 5 years. In fact, I predicted to my then boss after oil first crossed $50 that this move was due to fundamental reasons that were not likely to subside. So I am long-term bullish on oil prices. While I didn't feel that we would see $100 oil in 2007, I could definitely see that threshold being reached in 2008. As a result, I have consistently turned down offers to bet against $100 oil for 2008, even during the summer when oil was still trading in the $60's (about where it started the year). And I wouldn’t bet against $200 oil for 2010.

My Betting History

I have lost two bets in my life. The first time, I was in the 6th grade, and I lost a quarter betting a friend that my elementary school would win a track meet. I can still remember how I felt when I handed him that quarter. The second time was about 10 years later, and cost me a little more money. I bet my best friend that the Broncos would beat the Redskins in Superbowl XXII. We bet $5 a touchdown, and the Broncos scored a touchdown on their first play from scrimmage. I was feeling pretty good at that point. But it was all downhill from there. The Redskins proceeded to score six unanswered touchdowns, at that time a Superbowl record.

It seemed like karma was trying to tell me something: Don't bet. And that's the primary reason I haven't lost more bets. I simply do not bet. But 20 years after I lost that Superbowl bet, I made an exception this year - the $1,000 bet that WTI would not reach $100 this year. Once again, it seemed like karma sent me a warning, as oil came within a whisker of $100. And while I won the bet, my bad karma won't let me keep that money, as my earlier link indicated.

About My Betting Partner

Many people have asked about my betting partner. He has been silent throughout, but we have exchanged a number of e-mails. So, here are some excerpts about him, in his own words:

I still live, and I still lurk! (I've been an Internet lurker for 21 years; my only Usenet posting was about upgrading the audio circuitry of a Sony DVD player!)

I have to confess that when I agreed to the wager I had no idea what the price of oil would do this year, and as recently as a couple months ago I assumed there would be no chance of a run at $100 before December.

I tried to bet John Tierney last year that Natgas would go to $20.00, but he never got back to me. (fortunately, as it turned out).

I'm guessing that between exponentially increasing demand from China/India and exponentially increasing chaos in the Middle East, $100/bbl should be easy even in the absence of peak oil.

Let panic and chaos in the international oil market begin!

Piercing the veil on the mystery man-I'm a document analyst at Chemical Abstracts in Columbus, OH. If I see a patent from Chevron, Shell, et. al, I transfer it immediately to the petroleum section! [RR note: I deleted one sentence here as it may have enabled him to be identified, and I don’t know that he wants that.]

Risk Factors

I identified some risk factors from the start. A continued Saudi production decline would almost certainly lose me the bet. But my belief that the Saudi decline wouldn't continue was the primary driver behind the bet. But there were other risk factors. Here is what I wrote regarding the risk factors:

There are two scenarios in which I could see myself losing the bet. First, if we really are at peak now, and this becomes obvious as demand picks back up, then I could easily lose the bet. The other way is through a series of unfortunate events. If we have a bad hurricane season in the Gulf of Mexico, combined with terrorist attacks or pipeline problems (or any number of things), then I could lose the bet. But I think the odds of either of these is low enough to warrant the risk.

The Hedge

I also identified areas in which I was hedged. I own oil company stock that generally rises with the price of oil. So that’s a hedge. And in fact, while oil ended the year over $90, my company stock appreciated by more than 25% for the year.

Of course if the money was a big issue, I could have made another hedge. I could buy a contract as oil closed in on $100. If it rose to $100 from there, I lose the bet but earn money on the contract. If it fell, I win the bet but lose money on the contract. This is a sort of spread strategy I would use if I actually had big money on the line. But I didn't, so I didn't use it.

Investing versus Gambling

From the outset, I said that I invest, but I don't gamble. Without a doubt, skill and luck are involved in both gambling and investing, but gambling is weighted more toward luck. Here is an example of the difference to me. If I make a bet that oil prices will be higher or lower a week from now, per my criteria that is gambling. In the short term, oil prices can easily swing either way. But if I make a bet that oil prices won’t rise by $20 in the next month, that would fall more along the lines of what I consider an investment. The biggest difference there is in the probabilities involved. A bet on a $20 rise in a month would suggest a significant shift in fundamentals, whereas a bet on up or down in a week does not require that shift. I would probably have a 95% probability of winning straight-up bet on the $20 rise but only about 50% odds of winning the bet on simply higher or lower prices in a week.

In January of 2007, crude traded at $60. If you look historically, a move to $100 in one calendar year would be a very rare percentage move. Therefore, taking history into account, I deemed such a move unlikely. Of course if oil production has peaked, price history is not a useful guide. But in January, the market placed a low probability on oil reaching $100 in 2007. In a recent e-mail to me, Nate Hagens - who formerly traded for a living - reiterated that point:

I have been very bullish on oil but even I would have made the bet you did - no brainer - the option vol gave that about 1 in 12 chance of happening when you made the bet...

If I went to Vegas, would they give me even odds if I wanted to bet that oil wouldn’t reach $100 in 2007? Would the market give me those odds? Of course not. But I got even odds on the bet. So, I had history behind me, I was getting lopsided odds in my favor, and I felt very strongly that my primary risk factor – continued Saudi declines - would not go against me. To me, that’s a good bet. I don’t consider it gambling, because the odds are stacked in my favor.

Now, look at it from the other side. Let’s say I am convinced oil will rise to $100 in 2007. If I am, and the market is suggesting that there are 12/1 odds against, I buy a futures contract, and I make more than 10 times my $1,000 investment for being correct. Maybe this is why people were reluctant to take the bet - they didn’t prefer to give even odds when they could get much better odds in the market. That did occur to me, and would be a very valid reason not to take my bet, even if you were certain that oil would reach $100 in 2007. Of course my betting partner was aware of the odds, and just saw this as a bit of fun. And if he put a second $1,000 in oil futures, he is way up even after losing the bet.

I am not risk averse, but I stack the odds in my favor whenever I can. I understand probability and I don’t hesitate to put capital at risk if I feel the odds are favorable enough. This is primarily why I don’t invest in commodities. The reward is great, but so is the risk. And the time frames are generally not long enough for my long-term strategy. I try to look at fundamentals over a long period of time. I don’t buy a stock and sell it next year. I did when I was younger, but too many little losses affected my returns. Now, I buy according to how I see the long-term fundamentals, and if the stock goes down 20% in the next 6 months, I don’t sweat it. Exceptions of course being that the long-term outlook has substantially changed.

What Happened

Amazingly enough, none of the risk factors I identified transpired, yet I still nearly lost the bet. Saudi production stopped falling shortly after the bet was made. There were no major attacks on infrastructure, and the hurricane season didn’t affect any production for an extended period of time. Instead, there was a rash of other factors.

Primarily, whether you believe OPEC could produce more or not, their foot-dragging definitely spooked the markets. The fact that they waited until late in the year to start increasing production really fuelled speculation that they were tapped out. Worldwide inventories were pulled down in the 3rd quarter, but for the most part they weren’t unusually low. They were definitely lower than they were, but they were being pulled down from historically high levels.

The general consensus back in August was that oil might reach $80 this year, and perhaps $100 next year. But market sentiment shifted over the next 3 months. I think the ASPO conference in October really raised Peak Oil awareness. There were more references to Peak Oil in the media. It seemed that a critical mass shifted toward the view that we have peaked, or are near peaking. And once widespread realization of Peak Oil hits the markets, $100 oil will be cheap.

As market sentiment was shifting, there were a series of bullish events. For a while, it seemed as if every piece of news favored higher oil prices. Interest rates were cut. Prices spiked. U.S. inventories had some surprising crude draws. Prices spiked. Mexico had to halt production due to a storm. Prices spiked. Each week there was a new event that contributed to another $3-5 spike. OPEC continued to insist that there was nothing they could do, as “the spikes were not based on supply and demand.” Of course if they had the production to spare, it doesn’t take a rocket scientist to see that they could have cooled off the markets by putting more crude out there – whether or not they thought it was needed. Oversupply the market, and prices come down.

The net result, regardless of the cause, was that front month WTI topped out at $99.29 on November 21st. I maintained at that time that I did not believe that price was sustainable in the short term, and even if prices topped $100 I thought they would give up at least $10. Why? Not because I don’t think oil is intrinsically worth $100. No, the reason I think $100 was overextended at that time was that 1). I didn’t believe the fundamentals had dramatically changed enough over 3 months to justify a 30% run-up; 2). I felt that OPEC had some spare capacity that they could bring on in response to higher prices; and 3). The market had not had time to absorb the impact of higher prices on demand. This latter point is important, because we did see signs of demand destruction – which you would expect – at these higher prices.

The IEA started revising their demand projections downward, and at the same time OPEC started pumping more oil. This did impact prices as I had expected – they corrected down to about $88 before making another run at $100 late in the year.

So, while I came within a whisker of losing the bet, and the outcome was still uncertain right up to the end, following the closing on New Year's Eve my opponent wrote to me and conceded the bet:

Hi Robert,

I hereby concede.

At this point I'm left only with the faint hope of skyrocketing natgas prices to soothe my battered investor's psyche.

Have a great new year!

What to Expect in 2008

I think there are a lot more uncertainties than there were a year ago. To me, there are a few questions. First, how will oil prices hovering around $100 affect worldwide demand? I don't think we have had enough time to gauge that. Second, can OPEC bring on more production if demand does continue to grow? Bottom line, I am not making any predictions for 2008 as I think the demand question is a real wild card. I do expect that we will go ahead and crack $100, and if demand is not significantly affected by $100 oil, then it will probably advance another 20-40%.

But, no more bets from me. As oil closed in on $100, I was actually waking up during the night and checking on oil prices. I was dreaming about oil prices. But, now that 2007 is over, I say "Bring on $100 oil", as I think this is the only way we are going to stretch out our oil supplies by getting people to conserve.

Happy New Year to all, and best wishes for 2008.

I have enjoyed your posts in 2007.Meanwhile oil +$3;surf's up in Bay of Campeche(H of 1047 over Tx) .Winds 40-50mph and waves 20-25ft.Expect Pemex to close some prod and ports.NG shut-ins on US side??

Only port of Salina Cruz open.All others closed since yesterday at 3:00pm.See what time off does!

$99.54 as I write this. So close...

CNBC reported that it just hit $100.

Note that WTI was right at $50 in May, 2005--which is so far at least the monthly C+C peak (EIA).

However, my vote for "why" is principally declining net oil exports. Extrapolating from year to date data, it looks like the top five net oil exporters are going to show back to back net export declines of about one mbpd per year in 2006 and 2007 (Total Liquids).

Man, it doesn't get any closer than that...

I had just posted this on node/3449 and thought it would be appropriate here.

Back in 2004, I published an article stating that crude oil will reach $100.00 / barrel before the end of 2007.
When I wrote it , I sent it to everyone that I knew, in hopes that they would come to realize that peak oil is happening.

I have not had any better luck than anyone else here, in getting anyone to prepare for peak oil.

The article is at -

For date verification of original article, I posted it at a couple group sites.
You can check the archives at either of these links. You may need to sign into one of these for access.


Regarding the hunting charges, I would be inclined to contest the charges. I'm not sure you want an illegal hunting misdemeanor charge on your record. I suppose that the officer could argue that he had probable cause for issuing tickets, but there is a big difference between probable cause and beyond a reasonable doubt. I would think that you could hire a lawyer to get a judge to dismiss the charges.

If possession of a rifle means that you were hunting, driving a car would mean that you planned to commit vehicular homicide.

Its also possible that the officers father owns a corn ethanol plant.

True. Robert may wake up with a horse's head in his bed one of these days.

In Iowa that would be a hog's head! ;->

While I think you were extremely lucky not to lose this bet, I do think that the collective knowledge/understanding here is ahead of the market. As you point up, 12 to 1 odds at the beginning of the year in the market massively undershot the reality. Seemingly every medium/long term prediction that analysts in the market make appears to be proved wrong - while the consensus here gets much closer to the truth.

Which makes me wonder.

Running a site such as this costs money. Server, bandwidth, advertising, etc. eat a steady pile of cash. So why not put money where mouth is? Collect small stakes from a wide range of posters ($1-$5 type numbers) and invest it in the market using the 'wisdom of crowds' type approach to pick the best option - with the emphasis on seemingly high risk / high return options.

Not only does it provide a route for the site to gain some extra funds, it also makes a great story for the wider media. Historically oil analysts are doing no better than chance - it would aid credibility no end if the TOD prediction were shown to beat the analyst's viewpoint.

The market is completely clueless at identifying long term trends in oil and always has been. Read this article by Simmons. There's nothing different going on today.

BET ON IT! I've been documented here and elsewhere on the $100 as well, crude is going to $120 then $150 and also as I've said before $5.00 at the pump will become the new reality for americans soon. Also, I have my money and my client money where my mouth is and I will keep doing it! Demand has crossed production and it will not likely be going back, ever. That means Oil and Gas are going UP! I continue to bang the drum: ANY PULLBACKS ON CRUDE OIL ARE HUGE OPPORTUNITIES TO ADD OR ESTABLISH POSTIONS !!!! (by the way for those who are interested I am accepting a limited number of new clients so feel free to contact me, for those not intereseted, you can still count on prices going up) ALL ABOARD! Patrick Kerr, President of OilGasFutures.Com

Spam makes a great survival food - heavy on salt, but if you're out splitting wood, feeding the animals in the yard and fending off the Wez and his pals, your spam will probably be just fine....

mmmmm, spam

I experienced Spam for the first time this summer. I was in the grocery store with a bunch of my friends looking for provisions for our canoe trip down the WI River. We loaded up the shopping cart and suddenly realized that we were going to need to bring a cooler because of the beer, eggs, and bacon. One guy returned with Spam and another with several boxes of wine. The beer, eggs, and bacon were jettisoned. I thought the Spam was a joke and didn't think any of us would actually eat it until I found myself holding a Spam-burger next to the camp fire. I'm ashamed to say that it was quite good. In fact, we had a summer picnic after the trip and Spam was served along with the brats and hamburgers. No one who tried the Spam complained.

So my survival checklist goes like this:
Corbet Canyon Box-O-Wine

Ha - I was drawing attention to the spam activities of the poster above me - but yes, as humiliating as it is to admit, I have enjoyed spam. Growing up in the 70's (and being a fussy eater as a kid), spam was on the menu more often than I'd like to think. To this day I like the Hawaiian "sushi" made with spam - musabi?.

with all those nitrates in the can, how long is that stuff rated to survive anyway?

btw - on backpacking trips my father used to bring a smoked pork shoulder - without any cooling, it would last close on a week and stay edible - sliced and fried it makes a tasty morning meat product

box-o-wine eh?

ah ha and yikes: i pulled this quote from a great article on Richard Rainwater in FORTUNE Magazine for you "'How come some doofus billionaire in Texas made all this money by being aware of this (peak oil scenario), and why didn't someone tell us?'" That's basically all I meant by my comments, Like I said above, my comments were meant only for those interested ie i'm aware some people are not and was certainly hoping not to offend anyone ---pk

You could have Spam, eggs, bacon, beer and Spam. Or Spam, eggs, Spam, bacon, Spam, beer and Spam, or Spam, beer, eggs, Spam, bacon, Spam and Spam. Instead, you had Spam, Spam, Spam, Spam, wine and Spam.

Sorry, I just couldn't help myself...

SubKommander Dred

Well, at least give them a link:

Spam spam spam spam...

That's the great thing about camping, everything always tastes great! Most of the time that is.

...eggs,...were jettisoned.

Why? How long was your canoe trip?

[3] The widely touted idea of covering eggs with a solution of one part waterglass (sodium silicate) mixed with nine parts of boiled and cooled water does indeed seem to work better than any other "room temperature" preservation method we tried. If our experiences are any indication, though, it's really good for only about five months and is a distant second to controlled refrigeration.

Here's another one of those weird things like the thread about milk a couple of days ago. If the eggs are fresh out of the chicken they'll keep for a looooong time unrefrigerated. There's a coating on the eggs that keeps bad things from penetrating into it. Remember that this is the way a chicken reproduces and it lays a lot of them before it goes and tries to hatch them. So if you have a fresh, unwashed, and fertilized can stay edible for weeks. Eggs bought in the store have been washed of the coating so that they're "pretty" and are usually unfertilized and I wouldn't trust them very long out of the fridge.

For now, that $100 trade was only in the pit session. Electronically, the high was $99.60 - so someone was 'eager'.

In the end this is just a meaningless milestone. But it does serve as a valid reminder that we have moved into a different era, where the future is unknown, but finite.

It's official, see my capture from NYMEX above...

For now, that $100 trade was only in the pit session. Electronically, the high was $99.60 - so someone was 'eager'.

Yes a 'paper trade'. Nice memento for sale on Ebay soon.

While the occurrence of this "milestone" was postponed to 2008, we should not lose sight of the really significant milestones that did occur in 2007. I've just posted a comment (as "RealThink") to Brad Setser's blog on his review of 2007 milestones (, which I thought could fit in here.

Good summary, but it ignores key variables from the physical world that very likely will become more and more important as time passes. So I'll offer a few of them.

For crude oil, the 2007 milestone could best be described as "the third straight year of practically stagnant supply in the face of higher demand (and prices)."

This comes from both EIA data at (table 3a) and IEA data at .

World oil production
year 2005 2006 2007 2008
EIA 84.6 84.6 84.9 87.4 (wishful thinking?)
IEA 84.6 85.4 85.5

World oil consumption
year 2005 2006 2007 2008
EIA 83.6 84.7 85.8 87.2
IEA 83.9 84.7 85.7 87.8

Clearly 2008 will be "interesting times" in the Chinese sense for the oil market, since, for both the EIA and the IEA, projected 2008 global demand will be 2.3 Mpbd higher than 2007 global supply. So, either world oil production experiences a "surge" in 2008 (do you feel lucky?), or a good recession is allowed to take place in the OECD, or the oil price will surge deep into the triple digits in 2008 (and not only in dollars).

For food, the 2007 milestone is best described by the FAO in their November 2007 Food Outlook at

"The FAO food price index ... in September 2007 ... stood at 172 points, representing a year-on-year jump in value of roughly 37 percent. The surge in prices has been led primarily by dairy and grains, but prices of other commodities, with the exception of sugar, have also increased significantly.

... What distinguishes the current state of agricultural markets is rather the concurrence of the hike in world prices of, not just a selected few, but of nearly all, major food and feed commodities. As has become evident in recent months, high international prices for food crops such as grains continue to ripple through the food value/supply chain, contributing to a rise in retail prices of such basic foods as bread or pasta, meat and milk. Rarely has the world felt such a widespread and commonly shared concern about food price inflation, a fear which is fuelling debates about the future direction of agricultural commodity prices in importing as well as exporting countries, be they rich or poor."

And the linked Market summaries page (.../ah876e01.htm) adds, for cereals:

"For most cereals, supplies are much tighter than in recent years while demand is rising for food as well as feed and industrial use. Stocks, which were already low at the start of the season, are likely to remain equally low because global cereal production may only be sufficient to meet expected world utilization. International prices of cereal have risen, fuelling domestic food price inflation in many parts of the world. Trade is expected to contract because of high and volatile prices, coupled with soaring freight rates."

Therefore, price action for wheat, rice and soybeans as well as the evolution of global cereal stocks look like important milestones to include.

Particularly since, from the latest FAO communique at

"FAO is urging governments and the international community to implement immediate measures in support of poor countries hit hard by dramatic food price increases. Currently 37 countries worldwide are facing food crises due to conflict and disasters. In addition, food security is being adversely affected by unprecedented price hikes for basic food, driven by historically low food stocks, droughts and floods linked to climate change, high oil prices and growing demand for bio-fuels. High international cereal prices have already sparked food riots in several countries. "

Proof again that RR and the oil executives are part of a world-wide price conspiracy. There is no way they'd let him lose that kind of money!

U$S ----------> .679 €




Oil is moving in concert with the other commodities which indicates to me that the oil bidding war has not yet started. For example, currently an ounce of gold will buy 8.5 barrels of oil. When this number moves to 6.5 or less we will know the oil war is on. Ben is just printing too many dollars.

Looking at the charts, I would agree with you. However, is it reasonable that the oil profits are driving other commodity prices by reinvestment? Or, is it reasonable that Gold and Silver are also in short supply?

In addition to the dollar devaluation there surely is a lot of money going into commodities because paper, especially US and UK paper is cooked up garbage. It is like the chicken and egg thing. If the dollar were backed by good human capital and legit paper like it used to be, then it wouldn't be devaluating.

If the bet was about making a $1000 profit, Robert won.

If it was about making a point about the world's oil situation, he lost.

But the betting should continue. Price is what really matters as it effects every one of us. And, in reality, we are all forced to gamble on it by the choices we make.

I don't see how he lost "making a point about the world's oil situation". He says clearly several times in his article that he does think the world faces a big problem over oil in the coming years, but that even with things are going downhill there's a limit to how fast they can go downhill (because the underlying fundamentals don't change by unbounded amounts in a finite interval). Maybe he was lucky in his choice of limit for how much things could change in just over a year being only just larger than what actually happened, but the key question I want to understand (from reading posts from knowledgeable people) is not how fast things are going to get worse, but how slowly.

I conserve and don't live beyond my means now, but at the age of 34 in a relatively low paid job I just don't have the savings to go off the grid immediately. To me, it doesn't matter whether the "bite point" of peak oil is three years or five years off (where "bite point" to me means things like food supplies to UK cities being severely impacted, depression era unemployment levels, etc); it's much more important if that's ten, fifteen or twenty years off. And I can well believe that, particularly with "reality distortion fields" of spin doctors keeping everyone going right up to the precipice, this might be the case. (Of course, just because that's still relatively far into the future doesn't mean the majority of people will prepare for and adapt to it in advance, just that the unwinding may be slower than the many peak oil advocates say.) Those are the kind of timeframes over which I can take meaningful actions such as, eg, retraining, building up equity, etc; I'm not talking about immediate things like being out of credit card debt.

But I'm really looking for informed opinions: how slowly could the unwinding go?

Am no boffin on this embryonic, but have been following it since 2004 - actually got round to PO via Richard Duncan's Olduvai Theory. He seems to be pretty close to the mark from my point of view. Like you, I am can not yet afford to "fill the roof" with solar panels etc. My opinion is that we fall down pretty badly between 2010 and 2012. I feel i will need to get everything sorted by 2010, then it won't matter if we manage through a good many years longer. My problem is that I feel things are coming along quite a bit faster than I originally thought a couple of years ago. in 2005 I was 100% sure we wouldn't see $100 oil before 2009/2010. Now I'm not so sure that we even have another 2 or 3 years before the tires start shredding - the wheels might even fall off completely before then. Good luck. P.S. a Narrow Boat is a good place to start when trying get "Grid free", I am gas and water free currently, but providing the electric is still a major stumbling block.

I agree with Asebius. Robert may have won his bet, but he didn't win his point. And your post is proof.

As I understand it, Robert's point wasn't that the decline would be slow. It was that we are not at peak yet. He was arguing that OPEC's cuts were voluntary. He thought OPEC would bump production up and thus lower prices (and prove they were not at peak yet).

Now, I actually don't think Robert's theory has been proved either right or wrong yet. How much oil OPEC actually produced is debatable, but overall, it looks flat.

But most people following casually probably think that Robert was proved wrong, even though he won the bet. No one thinks he would have made the bet if he had any inkling he'd come within one (trading) day or a few cents of losing. Clearly, he didn't expect oil prices to get this high.

The price was a substitute for production, and as it turned out, it was a poor one. The rise in prices has as much to do with the weak dollar as anything else. But people focusing on just the bet don't see that.

I agree with Earthworm Jim. It was a tie. Not just on the price bet, but on the underlying debate. OPEC did not decline further, but neither did they boost production. So peak vs. "peak lite" is still unknown.

Well depletion marches on each year so OPEC's ability to increase production if its exists declines every year. Next the place to watch is in general not OPEC but American production and the North Sea. Its declines here that put pressure on exports. If I'm right and these regions are going to see accelerated declines then it does not matter what OPEC does if they don't pump more oil.
If we lose say 1mbpd plus from "safe" production and OPEC continues to follow export land model.
We are still down.

So I think OPEC will decline but on the same hand thats not the problem area today as far as production goes. The exporters Russia, OPEC etc have a lot of above ground and political reasons to not increase oil supplies that much even if they can. I think that has at least become clear over the last few years regardless of production capacity.

So now its non-OPEC declines and export land that will determine our short term future.

In my opinion a lot of the non-OPEC production is facing steep declines now.

...but the key question I want to understand (from reading posts from knowledgeable people) is not how fast things are going to get worse, but how slowly.

Very slowly.

Robert almost lost because he didn't understand how quickly the market players could digest and respond to the basic oil depletion story even in the absence of major supply disruptions.

2007 showed that the world is not going to be blind-sided by peak oil and that's good news. Don't head for the hills just yet.

Robert almost lost because he didn't understand how quickly the market players could digest and respond to the basic oil depletion story even in the absence of major supply disruptions.

That's not accurate. I know how quickly markets can move. I was in the market in 1987, and during the 90's tech stock boom and subsequent meltdown.

However, I do agree that what really moved oil was a widespread awakening over the oil depletion stories, and especially in the financial media. Where I miscalculated is that I certainly didn't believe that awakening would happen in 2007.

I also agree with those who said that this was a tie, and with Leanan's comments that we still don't have a clear cut answer on Saudi. I also agree that my opponent was much closer to the mark on oil prices in 2007, and in the end I got very, very lucky.

Looking back, I should have simply bet that Saudi production wouldn't continue to decline, because that was really the whole point for me.

And as I posted above I think we focused to much on KSA. We will never see cheap oil again because of production from OPEC thats obvious. And so far they have done little to moderate prices.

Even giving KSA spare production capacity its far from clear they would be able to keep the amount growing over time nor want to. We could even give them a extra 2mbpd of capacity that they would open up during real emergencies but at this point its really no longer useful for day to day oil trading.

I'm not sure the markets where peak oil aware in 2007 but they are certainly aware now that we won't see a flood of oil from OPEC ever and that non-OPEC production cannot break what has become effectively a embargo either backed by real spare capacity or not.

I think real peak oil awareness will happen over the Summer and Fall as we either have much higher oil prices or low inventories or both.

And I think it will take a above ground event to really shake the market.

So in a sense Robert I think your original concept may be closer to correct. All that changed over the fall is OPEC made it obvious they where not going to try and stabilize oil prices.
The question of if they can or not became a non-issue.
As far as KSA production remaining constant well we do know for a fact and always have that they did have spare capacity in heavy sour oil. This was brought online after they agreed to a discount. I wish we had a good breakdown in the amounts of the various grades KSA is shipping.

I'm not going to dig up all the articles but they certainly dropped the spread some for heavy sour and increased shipments. I've not seen enough info to make a call on this either way. But it seems that at least part of the answer is KSA is now selling its hard to sell heavy sour.
I don't take KSA keeping production up via selling more heavy sour as a good thing.

Finally we have to wait and see what the new better Mega-Projects list over 2008.
Robert it actually points out to your original assertions as being correct just normal
delays and issues may have caused a period of extreme tightness.

If we are lucky we will finally get a boost in production coupled with recession and we might have several more years of high but not dangerous oil prices.

So to try and round out this rambling post I think most of what Robert has says still holds outside of a obvious political signal from OPEC. I think that besides this the tea leaves can still be readily read any way you want. So I'm trying to agree that Roberts arguments are still quite valid :) And its still up in the air what the future will bring from the standpoint of the facts. Outside of its obvious that OPEC will let prices go as far as the market will take them.

Hm, I've reread Robert's article and see he does clearly say that IF Saudi had peaked then history becomes unreliable and 100 dollars was very possible, as Leanan points out. So I see that I misread and was wrong about that bit, although even near to the peak on either side I'd be surprised if prices changed with unbounded speed just because the amount of produced oil, whilst diminishing, isn't diminishing unboundedly rapidly. (This is contrast to the tech boom where people are investing on the grounds of "operating profits when the product finally ships", so a collapse of confidence is possible.) But I'm not a trader.

I'm not sure what lesson to take from 2007. In security punditry people often talk about the "boiling frog" effect: apparently if you put a frog in water and whack it on a high heat, the frog jumps away, whereas if you heat the water slowly it'll not realise and boil alive. (Dunno if this is actually true.) With the series of individually small magnitude run ups, I don't know if any lesson more than "oil is slowly costing more" has been internalised by the majority. (This is also one of the reasons why I wonder if things will be business as usual for quite a while, rather than price leading to significant conservation and technological research.) But this is really my vague opinions talking, which is why I really value the thought-out contributions from the more technically experienced people I read here.

Except, IMO there is nothing subtle about the net export situation. It's highly likely that the top five net exporters are going to show a drop of about one mbpd in net exports in 2007, much the same as the 2006 drop--on their downward slope to approaching zero net oil exports in the 2031 time frame.


In Canada, our net exports are increasing and the EIA put us in the top 15 for the first time in 2006.

Do your mathematical extrapolations give a date for when Canada gets into the top 5?

It depends on how fast the current top five decline.

In any case, from 2000 to 2006, Canada increased its net exports by an average of 60,000 bpd per year (EIA, Total Liquids). Also, it would be interesting to do a net energy export estimate for Canada. Natural gas consumed in the tar sands play is not available for export.

I estimate that the current top five will increase their consumption by about 500,000 bpd in just 2007.

Technically Robert won of course. But it was essentially a tie, really. $99.29 high before the end of the year, $100 on the first day of the new year. The difference between them is splitting hairs.

But I have to thank both of you for entering into the bet, since I myself and I imagine a fair number of other TOD readers found it a most interesting and entertaining thing to follow as the year went on.

Yes, thank you Robert for the memories. It was an entertaining read throughout the year, especially in mid to late November.

It is interesting that the year 2007 looked very different from what anyone anticipated; yet the results were bullish prices (for oil) and a bearish market (what many anticipated!).

BBC (an icon of MSM) is full of gloomy economic news today.
Oil Prices hit $100/barrel
Gold Reaches New Heights $855+ and counting
Contraction in U.S. Manufacturing Sector - Lowest since April 2003
U.S. home sales fall to 12 year lows (fell by 9% in November)

May we live in interesting times.

I refrain from betting myself, but it would be interesting to see when gold will reach the $1000/ounce mark. May be pool TOD readers on possible dates?

The early part of 2008 shows little good karma for my American friends, and perhaps even less of it for the rest of us for that matter. Get thee to the non-discretionary side of the economic equation.

May the force be with you in 2008. And my prayer, spare us O Lord from the wrath of our own hubris.

Yes, and I'm sure there are plenty here that are playing the oil futures market, where, with a couple contracts, $1000 comes into your account and goes out literally on whim.

Wasn't bad karma. That might have been the case if you actually had snuck in a deer kill. Just bad luck. At least by my understanding of karma.

Re gambling and investing:

To me, investing is something where you have a long term edge. Speculation is a short term investment where you still have an edge(or at least think you do) and gambling is something where the true odds are even or worse. One gets 'dopamine' from all three, and in fact I could argue that brain chemicals are the ultimate reason why people speculate/gamble and even invest/ as opposed to monetary proximate reasons.

It will be interesting what Peak Oil recognition does to the concept of 'investing'. "The stock market has always gone up" will be a difficult mantra to break - but break it will eventually - as stock market wealth can only increase continually if there is growth in the energy supply (or no growth balanced by conservation and efficiency.) The battle between technology and depletion has been being won by depletion for a long time - but this is under the surface - after peak oil, I expect it will be 'above the surface'.

I'd even bet on it.

The only real gambling I've ever done has been getting married. So far, on the second roll of the dice, I've been incredibly lucky:-))

In human behavior, it finally comes all down to psychology and fear factor, never mind the fundamentals. So it looks very likely (under this angle) that this is the signal of the beginning of the End Game.
Brace, brace ...


Robert, I just want to say thanks for all the great writing you have done on TOD in 2007. It was really interesting following the back and forth on the 1,000 dollar bet during this past year.

Now that I know you are an invester rather than a gambler, have I got a deal for you. I will build you an Electric Vehicle for the price of materials (Free Labor) with a couple of small strings attached.

Once a month you write about your experience owning and driving an electric vehicle. The subject of this short article will be simple.

1) What I like about driving an EV.
2) What I dis like about driving an EV.

Item 2 is that you "fuel" this EV with clean electricity. I prefer solar power, but wind or geothermal are acceptable as well.

You can see my current EV projects at Let me know if you are interested in this "investment"

Kyle, I am definitely interested in promoting electric vehicles. Let's revisit this when I am back in the U.S.

Now, if Nike wants to do a shoe contract, I can do that right now. :-)

BBC Business Report telling people not to worry about 100 dollar oil...

    First Graham Tuckwell from EFT Securities saying that these high prices are due to underinvestment in exploration in the 90's.

Then Paul Charles from Virgin Atlantic reassuring that their air ticket prices aren't going up and the current fuel surcharges will be taken down as soon as oil settles to a lower price.

"This price increase will act as a catalyst for producers and scientists out there produce those cleaner fuels."

Then some comment that the analysts in the marketplace expect supply to meet demand ones oil reaches 120 a barrel.

The world is burying it's head in sand.

The deeper one's head is buried, the higher one's behind is exposed :-)

Everybody, calm down please.

Oil is already down to $99.64

Before you know it, it will be back to $20, just like Sir Yergin promised.

And now: Off to bed, it's way past everybodies bedtime!

The price of oil went up despite nothing of great consequence occuring during the year...for example, the US didn't attack Iran and there was no horrendous hurricane season. Prices will stay the same or go up, obviously: if supplies stay the same, and demand increases (China, etc.), then prices go up. If supplies go up, prices start down, which causes a spike in usage (time to get that SUV!) and prices go up (same thing happens if there is a Big Find.) Prices have to go up on a finite resource, obviously. I might point out, though, that the Financial Times disagrees in some recent articles--so who am I (or you "peak oil thoerists" for that matter) to disagree?! I wonder if the FT is helping or hindering with such reporting; or, maybe the question should be, who is the FT helping or hindering with such reporting?

Happy interesting times...

In my opinion current pricing is acting as a better measure of real oil supply and demand vs reported production and esp exports. What I think your seeing is the market responding even though public supply reports have not changed dramatically.

The culprit if I'm right is actual internal US/Canadian/Mexican and North Sea production is right now quit a bit less than we have reported this is driving demand for imports but on that side export land is lowering real exports. Eventually the public numbers will catch up.

memmel, I agree about that current pricing.

I closely watch the weekly articles in by Tom Whipple
Peak Oil Review - December 31st, 2007

DOE Crude oil inventories
He put a chart of inventories for the last few years.
In the last several months, as oil inventories kept falling, oil prices kept rising.
It’s a good article to print off and keep handy.


Both you and Hugo Chavez are to be admired: you refuse to cash-in a razor-thin victory, he refuses to challenge a razor-thin defeat.

One of the underlying assumptions in classical economics is that there is an orderly change in demand as prices rise. But, with inelastic demand curves with quickly rising prices, so the theory goes, the consumer will pay any amount and in the longer run, changes in that demand will change with high prices as the consumer finds substitutes.

Yet, as we all sit here and look at $100 a barrel oil, we have to begin asking ourselves, when will the demand behavior of the US consumer start to change? Will they simply not buy as much gasoline? Will they simply not heat their homes in the ice belt at the same rate as before?

Will the inability of the consumer to change their consumption behaviors lead to political instability? Will the electorate begin to lose patience with a Congress unable to come up with a real energy plan the creates more supply of oil and gas?

Here's a really scary comment for all of us... What if the American electorate decides to revolt against the special interests, the politicians and the red tape and physically demands change... and no longer allows for a negotiated change in policy? Would $6 a gallon for gasoline cause such protest to come to the surface?

How quickly could any significant reserves come on line to avoid such a radical response to the demand-supply imbalances? Remember, China and India will try to suck any reserves in the rest of the world dry.

Once a week or so, I run into an acquaintance of mine in my office building who drives a large SUV, a Ford Expedition, which he uses to drive to and from his large mortgaged suburban home. I have told him where I think we are headed, and I have advised him to downsize now while he can. His continuing reply: No Way.

When the NYT profiled several drivers when gasoline first crossed $3 in the US, they found that the only drivers who had curtailed their driving were those who were physically incapable of buying all of the gasoline that they used to buy, e.g., college students on a tight budget.

How quickly could any significant reserves come on line to avoid such a radical response to the demand-supply imbalances?



PS: My target price is $350/barrel in 2011.

$100 oil is interesting, but like Y2K and the alignment of the planets/end of the Aztec calendar in 2012 it only has psychological significance in and of itself. I think the actual price of oil is not as important as the reaction to it. For example, $100 oil inflation adjusted was a much bigger deal in '80 after the Iranian revolution when it caused a pretty severe recession. Now, it is just a news story, much less important than the current election coverage. It will be interesting to see at what price we (the American people) feel the impact full force.

$4 a gallon is where it's gonna start hitting major mainstream attention, not the price of Oil. It's too abstract. No one buys it.

Cheers Robert and congrats on winning the bet. Although, if it were me, I'd have been really sweating it these past three months. Two days on a one year bet is a very slight margin. We're just barely into 2008 and we've already hit $100 oil.

Someone here mentioned something about $20 oil. They may have been joking, but for my part, I don't think we'll ever see $20 oil again.

Best to everyone and happy new year!

$100 oil, sheesh!

Good bet. Where is SelfAggrandizedTrader when you need him. I say we are below $80 in November 2008, he would see that coming.

If we are below 80 Nov 2008 it means a serious recession perhaps the beginnings of a depression have taken hold. That in my opinion is the only thing that can send oil prices back down. By the end of the summer we should be well over 100. Thus your effectively predicting economic collapse.

So what what you wish for.

People don't get it. The only way for lower prices is heaps more new supply or decreased demand. But how else can else can demand decrease without the cause being way higher Oil prices?? Answer is, of course, as you say, a recession. But how fast can this happen? I mean, it's the unemployment from a recession resulting in way less driving that will reduce the demand for oil first and foremost. Hasn't SS done posts on that sort of thing?

Demand is far more likely to be destroyed during 2008 by high gasoline prices due to WAY HIGHER oil prices than it is due to unemployment resulting in less driving reducing the demand for oil!!!!! IT'S SO OBVIOUS!!!(IMO)

I could be fast can unemployment rise?

There is a lot of projects coming on line in 2008, it looks like one of the last really good years. Also $100 dollar oil is going to start doing some demand destruction. If supply comes on line as demand is still constrained (it takes a while to turn a tide), then you could see a short term reversal.

No one buys oil. We buy oil products. Show me the products that $100 oil is making too expensive for people, in significant enough amounts to cause significant demand destruction. The key is the USA, using 25% of the oil. And gas is still around $3 per gallon. And that isn't causing very much demand destruction at all!

The US? Sure, the cost of gas in relation to income is not much of a problem for a large part of the population, they just won't have dental work done on the kids and keep the SUV tanked up. But some of the greater increases in demand are coming from the rest of the world that yearns for the happy motoring life style. So some guy in Guangzhou does not get his drive in utopia this year... doesn't make big news but brings down top line growth.

In 2006 after the summer run up SAT predicted a short term collapse of oil in the fall to winter of that year, he was bullish long term (obviously after the C&C peak). We all thought he was crazy, but it turns out he was spot on. The thing is the market can make short term swings regardless of the long term situation, it can be irrational and influenced by large players. We will see.

Yes but this time it's different!


I think 2008 will be noticeably worse than 2007, although not necessarily massively. After all, thats how things progress post peak oil, barely perceptible for the first few years, then significantly for the next 2, until the golden moment when the MSM wakes up (because it becomes UN-DENIABLE)

The no more DENIAL moment is approaching, will it be 2008 or do we have to wait another year or 2? The 64 million dollar Q