Arnold Kling writes:
If the oil company executives want to put money on their “working assumption of $15-$30 per barrel,” then they should go short in the futures market. But if their goal is to maximize shareholder wealth, then they should make long-term investment planning decisions based on the futures price of about $60 a barrel. What the oil company executives are doing is equivalent to a mortgage banker making a home loan for 5 percent based on a “working assumption” that rates are going to eventually head down to that level. I don’t believe in a “windfall profits” tax for oil. But a “willful arrogance” tax might be in order.
The conclusion I draw from such calculations is that a random walk seems to be quite a good approximation to the dynamics of real oil prices
It does turn out that there is a small chance that oil prices will fall below $15 a barrel by 2010, but there is small chance that they will rise above $230 a barrel by the same random walk model.