1. PEAK OIL AND THE NYMEX FUTURES MARKET: DO INVESTORS BELIEVE IN PHYSICAL REALITIES? P. Almeida and P. Silva Universidade da Beira Interior Covilhã, Portugal

2. Introduction The imminence of a world peak of oil production is gaining general acceptance. This fact will inevitably result in an increase in oil prices. Expectancies for future oil prices can be gauged by the price of futures contracts in exchanges like NYMEX. Question: Do the market participants (in exchanges like NYMEX) accept/recognise the future peak of oil production?

3. Date for Peak Oil Can the Peak Oil date be predicted? Date predictions for the occurrence of the peak do vary a lot. But there are a number of serious studies that point consistently to a not very distant date. A review of recent predictions for Peak Oil dates can be found on the Hirch et al. report sponsored by the USA government and presented on February 2005.

4. Date for Peak Oil AuthorDate Bakhtiari, A.2006-2007 Simmons, M.2007-2009 Skrebowski, C.After 2007 Deffeyes, K.Before 2009 Goodstein, D.Before 2010 Campbell, C.Around 2010 World Energy CouncilAfter 2010 Laherrere, J.2010-2020 EIA – reference case2016 CERAAfter 2020 ShellAfter 2024 Lynch, M.No peak

5. Futures prices for oil From the previous table, and according to our own estimations, the world peak of oil production has a high probability of occurring between 2008 and 2012. Considering a relatively flat top for the production curve, a significant imbalance between production and desired consumption can be expected well before peak oil really occurs. The longer time frame for futures contracts in NYMEX, is December 2011, and prices for this date should already be clearly affected.

6. Futures prices in NYMEX (2005/03/11) ContractLastOpen Int. Cash ( CLY00 )$ 54.430 April '05 ( CLJ05 )$ 54.43133313 June '05 ( CLM05 )$ 55.3590462 September '05 ( CLU05 )$ 54.7524223 December '05 ( CLZ05 )$ 53.7568297 June '06 ( CLM06 )$ 51.6219948 December '06 ( CLZ06 )$ 49.8844912 December '07 ( CLZ07 )$ 47.6727562 December '08 ( CLZ08 )$ 46.2226860 December '09 ( CLZ09 )$ 45.4214498 December '10 ( CLZ10 )$ 44.9317670 December '11 ( CLZ11 )$ 44.684238

7. Futures prices in NYMEX The previous table shows that the market participants have worries for the next few months but not for a more distant time frame (e.g., 2011). The lower prices shown for the more distant contracts gain even more significance, considering that in stable futures markets a contango situation is expected: In this case, a price correction (due to postponement of payment and storage costs avoidance) of 3% per year seems reasonable, and even conservative.

8. Conclusions This behaviour for the futures prices show that, on the long term, the market expects a significant drop in crude oil prices. This shows that even the persons and companies directly involved in oil trading seem to have a deficient understanding of the expected future supply problems. (However, as expected, the more recent futures prices already seem to be showing a partial correction of this market inefficiency.)