Everyone wants to know where oil prices will end up, but so far they've dropped far more in the past year than anyone expected. A view of the Kern River Oil Field in Bakersfield, California. 
Everyone wants to know where oil prices will end up, but so far they've dropped far more in the past year than anyone expected. A view of the Kern River Oil Field in Bakersfield, California.  - 
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This story has been updated.

On Friday, Goldman Sachs analysts came out with a worst-case scenario for oil prices in which crude could fall to $20 a barrel. It's not likely, they said, but possible. The International Energy Agency, meanwhile, predicted the biggest contraction in supplies of oil in 24 years. The laws of supply and demand being what they are, that would argue for higher prices, not lower.

In the middle of this past year's oil price ups and downs, a group of energy reporters went looking for some fun and figured this was a good time to make a bet on crude. The bet was born last December, when oil was cratering. The price of a barrel of crude had gone from $114 to $70 and was still losing altitude.

So five oil nerds — four reporters and one analyst — made their wager.

“This was a couple weeks after OPEC had met in Vienna and decided not to rescue oil markets, not to cut production,” says energy writer Russell Gold of the Wall Street Journal, who is also an energy fellow at the University of Texas.

OPEC’s call to keep pumping shocked the world. 

“No one had expected that,” says Steve LeVine, author and oil writer at the online publication Quartz. “In fact, that’s the story of oil the last few years, is one thing after the other just embarrassing people like us with these surprises.”

The question was, whose theory, whose explanation about oil markets, could pass the real-life test? Thus the bet, by Gold, LeVine and three others, on what the price of crude will be on the last day of 2015.

LeVine figured the market would stay flooded. So he took the peak price from last summer, and simply chopped it in half, which came out to $57.75. And his empirical work was done.

“You know the Wall Street Journal is famous for this monkey throw,” LeVine says. “You know, who is better at picking stocks, brokers or monkeys who throw darts at a board? And I picked the monkey.”

Gold joined the same camp of low-price “bears.” And, like LeVine, dispensed with charts and calculations.

“I called up my deputy editor, Lynn Cook, and said, ‘Hey, gut check me on this,’” Gold says. “She gave me a different number. And then I basically took the number I was thinking and the number Lynn had, and I split the difference. That’s how I got to $62.73, although later I claimed it was because if you added the 6 and 3 and the 2 and 7, it was 9's, and that was sort of my lucky number.”

The other bets were higher. In fact, one is $90, on the narrative that low prices would put high-cost American frackers out of business, and that global demand would stay healthy.

Even for the Wall Street “pros,” prediction is all about these narratives.

“They build a story,” LeVine says, “and then they find the data and charts to back that up, and then they say, ‘Hey, look at this.’”

This may remind you of the most famous commodity wager. In 1980, the biologist Paul Ehrlich and the economist Julian Simon bet on the prices of five natural resources at the end of that decade. Ehrlich feared resources were running out, population was growing, and thus prices would soar. Simon, the optimist, assumed innovation and generous market prices would deliver new supplies.

Simon won. And the same camp seems to be winning today.

“Fracking, I think, has really banished peak oil and has proven Julian Simon right for the time being,” Gold says. “If there’s one thing I’ve learned about oil, you know, just wait a couple years, the weather will change and we’ll go back to where we were.”

For now, the world has supplied more crude than any of the Five Oil Guys assumed. Every one of their bets is higher than today’s price of $48.17.

Why? U.S. drillers — the high-cost producers — stayed in the game and kept pumping and selling. OPEC members Iraq and Saudi Arabia did, too.

“They’re going to keep producing,” LeVine says. “It could go down to $40 by the end of the year.''

Gold shows no signs of backing down. And the oil picture may be turning: U.S. production is finally slowing, and market chatter suggests OPEC and Russia may follow suit.

Now, there’s a surprise twist to this story. 

“I misunderstood the bet,” Gold says.  “I thought we were betting on the year-end 2014, not 2015.”  

Steve LeVine made the same mistake. They both goofed on the premise of the bet. And yet, as of today, they’re the two most likely to win the Big Oil Bet.

Perhaps another reason to pick the monkey over the Wall Street pro.

Click the audio player below to listen to Tong's full interview with LeVine and Gold. 


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