Ten years ago, I entered a wager on the price of oil. My position, inspired by the writings of Julian Simon, was that oil, like many other natural resources, would drop in price in the long run. A period of ten years was deemed long enough to weather temporary fluctuations in price, and was the term used in Simon's famous bet with Paul Ehrlich.

Because my friend had reservations about the U.S. dollar as a stable marker of value, we went with the price of a Big Mac, as tracked by The Economist. At that time, 19.2 Big Macs had the same price as a barrel of oil.

Oil spiked in the first years, and the record shows that I did not comment often on the wager in those gloomy days. But within three years, prices had equalized.



Oil continued to drop, and then recovered some, so by the halfway point it was a close race.



Occasional bumps in the Big Mac index, keeping the burger ahead of inflation, kept things exciting as the years advanced.



After eight years, I was trailing, with the Big Mac basket valued at $87.55 to oil in the mid-90s.

Then, just in time, oil crashed. With less than a year to go, oil prices fell by about half. I was saved.



Oil closed at $41.08 on December 1, 2015, 42% lower than the inflation-adjusted price of $71.05 from 2005, lower even than the non-adjusted 2005 price of $58.47. Anyone stockpiling oil in anticipation of a peak would have taken a beating.

I have not yet collected, but I am thinking of offering double-or-nothing, despite the apparently low present prices of oil. My wager was never about oil per se, but about the increasing availability of natural resources in the long run, a trend that has held true for many resources. I see little evidence to support the idea that this trend is likely to reverse. Who wants in?

With fewer than twelve months to go before the wager matures, a sudden and dramatic crash in oil prices has me hopeful of a win.



A barrel of oil now has approximately the same price, inflation adjusted, as it did nine years ago, when it was $58.75. The Big Mac has appreciated relative to inflation, so the bundle of 19.2 burgers is now worth about 65% more than the oil barrel.

During the last spectacular oil crash in 2008, the price dropped by about three-quarters in six months, from $143.57 on 2 July 2008 to $33.87 on 19 December 2008. This time the price dropped by half in the same time, going from $107.26 on 20 June 2014 to $55.91 on 15 December 2014.

But a year is a lot of time for a recovery. By mid-December 2009 the price had risen to the mid-70s, above the burger index at that time.

With just two years to go in our decade-long bet, the race could hardly be closer.

The basket o' Big Macs is worth $87.55, and oil barrels are trading in the mid-90s.

Oil has stubbornly held on to the higher price for most of the past eight years, but now and then takes a dip below the burger line, giving me hope.

Peak Oil is still an idea whose time has not yet come.

Oil closed yesterday at $88.91, and the burger benchmark is $83.14, thanks to a recent bump in the Big Mac Index.


This marks the two-thirds point in my ten-year wager with Dave on oil prices, and it still looks like it could go either way. Taking a page from Julian Simon, I am betting that oil will not become more scarce and expensive but rather more cheap and readily available. Two game-changing technological advances are working on my side. Fracking is already delivering on its earth-shattering promises of abundant natural gas, driving energy prices down. And a shift toward electric vehicles is well on its way. A mild winter and weak economy probably aren't hurting my side either.

Keep in touch Dave, talk to you in three years and four months!

the scoreboard

The race between burgers and barrels remains too close to call, but petroleum backers have more reason for comfort. A barrel of crude, now priced around $100, has been worth more than 19.2 Big Macs for most of the duration of our bet. I had a brief taste of the lead in early October before a rapid correction.

Will The Economist give me a few more cost-of-burger-adjustments by 2015? Will Peak Oil finally deliver on its promises? Will nefarious manipulation give one side the edge? Keep your eyes on the dashboard for the latest figures.

Halfway through, and still too close to call.

Check the Oil Market Report for the latest on Macondo, easing, and cracks. In brief, the expectation is more of the same, probably.

We're forty percent into a ten-year wager over the price of oil versus burgers, and it's pretty close. A barrel of light sweet crude cost the equivalent of 19.2 Big Macs in 2005. Today it costs just over 21. I'm betting that, contrary to fears of Peak Oil, you'll be able to get more than a barrel for your 19.2 Big Macs six years from now.



CNN says that cheap oil is here to stay, citing Deutsche Bank's prediction of a $65 barrel price next year.

Here's the text of the wager, the original of which has been lost to bit rot.

1 December 2005

WHEREAS

forum member wasoxygen has been quite convinced by Julian Simon the Wise that a Paradise of Plenty is nigh upon us, when the streets shall flow with honey and any other Goods and Services which the Invisible Hand shall deem needful; and member uncanuck believes this not necessarily so to be, it is hereby

RESOLVED

that, on December 1, 2015, should the cost in United States Dollars of one barrel of Light Sweet Crude Oil, today valued at $58.75, according to 321energy.com or some other mutually acceptable authority, divided by the average cost in the United States of one Big Mac, today valued at $3.06, according to The Economist or some other reputable source, be greater than 19.2, then wasoxygen shall pay uncanuck the amount of ONE HUNDRED U.S. DOLLARS, and if the ratio shall be less than 19.2, uncanuck shall pay wasoxygen the same amount.

On the third anniversary of the wager, the numbers are in my favor: a barrel of light sweet crude costs noticeably less than the 19.2 Big Macs which matched it in value on December 1, 2005.



Here are the annual figures so far:

	Oil	Big Mac	ratio
12/1/2005	$58.75	$3.06	19.20
12/1/2006	63.43	3.10	20.46
12/3/2007	89.31	3.41	26.19
12/1/2008	49.28	3.57	13.80

With this level of volatility, ten years is probably the very minimum term in which any kind of long-range trend will be visible. For perspective, here's the chart showing how far we have to go.




Sources:
http://www.economist.com/markets/bigmac/
http://www.eia.doe.gov/emeu/international/crude2.html

Several years ago I was sufficiently impressed by Julian Simon's book The Ultimate Resource to emulate his famous wager with latter-day Malthusian Paul Ehrlich. In my bet, as documented in the dusty archives of Fiat Lux, I argued that the price of a barrel of crude oil would be lower in ten years than it was in December 2005, as compared to the price of a Big Mac. At that time it cost 19.2 Big Macs to get a barrel of light sweet crude.

Simon preferred to compare commodity prices to the consumer price index, or mean wages, to show that the resource is more easily obtained regardless of inflation. My betting partner felt that the U.S. dollar was too unstable to use these indices, so we settled on The Economist's Big Mac Index, which has been fairly flat so far, rising from $3.06 to $3.57.

Today oil dropped into win territory for me for the first time in over a year. We're only about a third of the way through the term, so it will be interesting to see what comes next.


Sources:
http://www.economist.com/markets/bigmac/
http://www.eia.doe.gov/emeu/international/crude2.html

Two years ago Dave took on my wager that Big Macs would rise in price faster than oil. One fifth of the way into the ten-year term, things are going in his favor:

	Oil	Big Mac	Ratio
1 Dec 2005	$58.75	$3.06	19.2
27 Jan 2006	$67.35	$3.15	21.4
6 Apr 2007	$64.28	$3.10	20.7
1 Dec 2007	$89.00	$3.41	26.1

The current Big Mac price comes from the Economist's Big Mac Index of July 2007. The price of light sweet crude is from 321energy.com.

Here's a chart showing the petroleum surge.