Betting on falling oil prices? Bet long

‘How about a friendly wager?” a reader suggested. “If the price of West Texas Intermediate — currently $62 (U.S.) a barrel — hits $42, I pay you. If the price hits $82, you pay me. You decide the amount of the bet — $50? $100? $1,000? More? Much more?”

It would be an entertaining wager, and either party could win. It would not, however, be a bet on the price of crude oil. It would be a bet on UN sanctions in Iran, revolutionary fervour in Venezuela, criminal sabotage in Nigeria, terrorist insurrections in Iraq and property expropriation in Russia. The fact is that the market price of crude has remarkably little to do with the world’s long-term supply of fossil fuels. Deduct the fear premium and the price of crude is probably already less than $42 a barrel. Apprehension is now a permanent component in oil prices — like taxes.

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