Contango, Backwardation, And All That Good Stuff  

Econbrowser has a couple of posts up that discuss peak oil from an economic (and investment) perspective (along with a refresher course on oil futures arbitrage and the difference between contango and backwardation).

So, with that as background, let me now repeat the point of my earlier post. The peak oil hypothesis holds that global production of petroleum is soon going to start declining every year rather than increase each year as it's done in the past. That scenario implies that oil prices will be rising rapidly in the future. The 2011 futures contract that you could buy today is at a price that is in fact below the price of a 2006 futures contract (backwardation). So, if you believe in peak oil, you should buy that 2011 futures contract. But you should also take into account, in evaluating the plausibility of the peak oil hypothesis, that there seem to be a lot of people who disagree with you and are prepared to wager substantial sums against you.