The Oil Drum: New York City

Helping New Yorkers understand, prepare and adapt to the implications of Peak Oil

Tuesday, August 23, 2005

Betting on Peak Oil

If you start to define the characteristics of the American spirit, the profit motive would rank pretty high on that list. While I continue to discuss the peak oil issue with people on and off line, the one topic that everyone seems to be interested in is how to make money off of it (even if they reject the main ideas). In fact, by far the most hits that have ever come to this site was when I summarized some of my own financial moves in anticipation of peak oil. In fact, when I tell people that they should start putting some of their money into gold as a hedge against a stock market crash, people seem to be listening a lot closer and actually engage in follow-up questions like: How do you buy gold?

Betting was the topic of today's column by John Tierney, who placed a wager with Matt Simmons that oil would not hit $200/barrel by 2010. Of course Tierney takes the pure economics notion that technical progress and innovation will force prices down over time. Given that, I wondered why then he did not bet Matt Simmons that oil would go back to it's historic price in the $15-25 range. In fact, I wondered why they didn't just look at today's commodities market future price for December 2010 which sits at $60.56, $5 less than the current spot price. Tierney seems to be giving himself quite a margin of safety! From my perspective Simmons has already won the main point, which is that oil is definitely headed up in price.

In typical American style I feel like it should be pretty easy to make a killing if you can see an event happen long before it occurs. If you want to place your own wager, a good first step might be to go to where you can place small bets on the direction of the oil or gas market with small denominations of cash (minimum start-up cost is $100). I'm not sure how liquid that market is yet, so caveat emptor.

I've also been trying to figure out how to start buying oil futures and options. I'm a little scared since I think everything has to be purchased with either large amounts of cash or on margin (a big no-no for inexperienced investors). I saw an ad for a commodities broker on The Oil Drum (by no means do I believe they endorse them) that seemed to specialize in new commodities investors. Again keep your guard up and test the waters with small positions before expanding your exposure.

I feel like it is a win-win bet. If oil tanks, it probably means that we have learned how to re-engineer our society to use less oil and civilization is saved (that's spelled V-i-c-t-o-r-y!). If oil prices continue to rise then at least you have protected yourself and can use your new wealth to help rebuild our economy.

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At 10:09 AM, Anonymous Anonymous said...

"The Oil Factor" covers a lot of this in more detail.

At 9:05 AM, Blogger Step Back said...

I think Matt Simmons bought himself a free spot on CNN, on the Lou Dobb's show --but I might of been dreaming, twas the middle of the night between Wed and Thurs

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