Joe Romm to Michael Lynch on peak oil: Wanna bet?

Michael Giberson

Joe Romm, at Climate Progress, offers a public wager to Michael Lynch, of the recent NYT op-ed opposing peak oil. Romm singles out this line from Lynch’s piece:

Oil remains abundant, and the price will likely come down closer to the historical level of $30 a barrel as new supplies come forward….

And then offers the bet:

Here’s my bet to Lynch. Let’s take the average price of oil from 2010 to 2015. For every $1 a barrel it is below $40, I’ll pay you $200, if you pay me a mere $100 for every $1 a barrel it is above $40.

The average spot price in this series of data from the EIA over the period 1986-2008 is $37.78 (in inflation-adjusted 2008 dollars; other data series will get you a slightly higher or lower price, but not a fundamentally different conclusion).  A data series running back to about 1974 would find a higher average, and a longer view is necessary to see an average near $30 (in constant 2008 dollars).

Historical analyses of crude oil prices have found two different kinds of conclusions. Some folks find a random walk, which implies that a good unbiased estimate of a future price is today’s current price, and other folks find a bit of mean reversion, meaning that as the price moves above or below long run average prices there is at least a weak tendency for prices to return toward that long run average. The first view gives a future estimated price of around $70/bbl (but with a very wide variance), while the later view probably suggests a price closer to $35 or $40/bbl.

Technically speaking, you will have noticed, all Lynch said was prices would “likely come down closer to … $30.”  Beginning with a price around $70 when the article was published, any price less than $70 is “closer to” $30.  And Lynch said “likely come down closer to … $30 as new supplies come forward in the deep waters off West Africa and Latin America, in East Africa, and perhaps in the Bakken oil shale fields of Montana and North Dakota.”  So if anything prevents those supplies from coming forward, then Lynch’s claim isn’t tested.

That’s a problem with most such public pronouncements – they usually are not specified in a manner clear enough for testing (perhaps with good reason).  To make a meaningful wager, the principals will have to be more specific on issues like selection of a price series, method of averaging, adjustments for inflation, and so on.

I’m a big fan of the idea of pundits putting their money where their mouth is, so I’d to see Lynch respond with whatever clarifications he needs to fully specify his claim, and then Romm can decide whether he is still willing to offer a wager.  I hope they work out a deal.

NOTE: See earlier KP posts on the Lynch op-ed and on a response from The Oil Drum.  A second, better response at The Oil Drum has been posted.

ASIDE: I was going to suggest that Romm and Lynch take the wager to Long Bets, but Long Bets requires all bets to be even money and Romm is trying to tempt Lynch with a two-to-one offer.

There are a handful of peak oil related predictions up at Long Bets: see #246, #257, and #168.