Even odds that oil prices will be high
Posted December 2, 2009 at 9:02 am 
Filed in: Oil prices are going back up. The question is how high they will get before the next major fall. Two of Europe’s largest bookmakers, Ladbrokes and Paddy Power, think that higher oil prices are very likely. Both offered odds of 2/1 that oil prices would top their historic high of $147 last year by the end of 2012.
Ladbrokes has now been offering bets on the price of oil for more than four years (it is easy to see why when we look at the graph below). And while still a niche product, they have been seeing more and more interest from gamblers. As with most things that people gamble on, the interest is found in the uncertainty, and in the case of oil, the volatility. For most gamblers, a simple bet among friends on the price of oil next week or next month is harmless fun, but it is the fact that people want to bet on oil at all that is somewhat disheartening. Should not gambling be the realm of entertainment like soccer matches and horse races, rather than a commodity that our economic activity is so strongly dependent on?
The price of oil has risen steadily since the beginning of the year. Back in February prices were at times below $40. Last month (just 8 months later), prices had doubled to $80. We do not know which way oil prices will go next. But we do know that they can be very damaging, to both our national security—a RAND study estimates the annual cost of securing foreign infrastructure and safe passage of oil imports to be between $67.5 billion and $83 billion—and to our economic security—the U.S. trade deficit in crude oil and petroleum products reached $388 billion in 2008 (56 percent of the total trade deficit).
We must continue efforts to reduce our dependence on such a volatile and often highly priced commodity. Otherwise, it is a good bet that it will cause us even more harm in the future.
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