# The Real Price of Oil and the Ghost of Matthew Simmons

The Real Price of Oil and the Ghost of Matthew Simmons
Short Essay
Background: In 2005, Houston investment banker Matthew Simmons entered into a \$5000
bet with New York Times journalist John Tierney. Simmons bet that in 2010, the average
price of oil in 2005 US dollars (ie, adjusted for consumer price inflation) would be at least
\$200 per barrel, three times higher than the then price of \$65 per barrel. John Tierney thought
it would be less and agreed to the bet. Asked about how the bet was going in 2008, Simmons
replied ‘We bet on the average price in 2010.

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The Real Price of Oil and the Ghost of Matthew Simmons
Short Essay
Background: In 2005, Houston investment banker Matthew Simmons entered into a \$5000
bet with New York Times journalist John Tierney. Simmons bet that in 2010, the average
price of oil in 2005 US dollars (ie, adjusted for consumer price inflation) would be at least
\$200 per barrel, three times higher than the then price of \$65 per barrel. John Tierney thought
it would be less and agreed to the bet. Asked about how the bet was going in 2008, Simmons
replied ‘We bet on the average price in 2010. That’s an eternity from now!’
An ‘eternity’ later, in December 2010, John Tierney collected \$5000 from the estate of the
late Matthew Simmons after the price of oil in 2005 dollars averaged \$71 in 2010 (you can
Essay question: The ghost of Matthew Simmons visits you in 2011. He may be dead, but
he’s not done betting on the real price of oil! He wants to bet you that in 2020 the real price
of oil will be more than \$200 in 2005 prices. In no more than 1500 words (excluding
references and Part A), analyse the factors that determine the global supply and demand for
oil in the short and the long-run. Argue either for or against the view that the real oil price
will be greater than \$200 in 2020.
Note: There is no right or wrong answer to the essay question in Part B (this is a forecast
about the future, afterall). We are mainly interested in how well you argue your case. You
should refer to the data in Part A and the following readings in the text of your essay, using
appropriate methods of citation and referencing. This is not a research project and you do not
need to go beyond the assigned readings. Note that the readings present conflicting views.
Many of the readings will challenge your preconceived ideas. You have to decide which
arguments you find most persuasive in making your case.