Oil prices a black swan?

So, at the moment I'm reading The Black Swan by Nassim Nicholas Taleb. I read a very interesting profile/interview with him from the Times a few weeks ago, so when I spotted the book in Borders at the weekend, I'd thought I'd give it a stab. Especially after it got the humbs up from my Economics and Science sounding board, Dave (he does my reading so I don't have to.

 

The main point of the book (well, I think so, I haven't finished it yet), is about the unexpected and highly infulential event, the black swan, which are rare and unexpected because we assume, rather arrogantly, that we can learn everything we need from past events. This was, according to my old Ancient History teacher, the way the Romans worked, and where are they now? What have they ever done for us?

 

The main problem is one of induction, and I don't think that I'm giving too much away when I describe the example he gives early on in the book; that of a Turkey. It's fed for 1000 days, so naturally it assumes it will be fed on the 1001th day. But that day is just before Thanksgiving, and instead of a tasty meal of erm, things (what do Turkeys eat?), it gets killed, plucked, and put on the shelves at the supermarket. Now, to the Farmer, who expects this, this in not unusual. But to the turkey, it probably comes as a bit of a shock. So we can't trust previous data (or at least, we can't assume that it is good indicator of the future).

 

In the book, there is a graph of this, which is essentially a climbing line, that goes up as time progresses. A bit like the one below:

 



 

The big difference between the two graphs (apart from the subject matter) is that the one referring to the Turkey has a rather sudden drop off (coinciding with the poultry getting the chop).

 

What am I getting at? Well, I wonder if Oil might be a black swan, as it were. Or at least, oil prices might be. We're accustomed to them going up. And up, and up. They come down a little every now and then, and then they go up. What if they suddenly come down, massively? What if a hitherto unknown oil field, easily extractable, is discovered? Ok, so the oil companies probably have checked out most places to find oil. But what if something totally unexpected, totally unpredictable happens? Oooh, I don't know, what if, say, everyone's favourite closed-bordered, tyrannical, hostile and secretive North Korean nation, North Korea, suddenly announces that it has millions of barrels of oil that it has secretly stockpiled/collected/grown using biotech/otherunlikelyreason, and sells them on the open market for $5 or $10 a gallon, which would bring down the value of oil accross the world. Then what? What happens? Who wins?

 

I'm not really sure if there is a point to this post, apart from the fact that it could happen. And then who would benefit? Sure, we would pay, briefly, less for oil. We'd still use just as quick, if not quicker than before, so the environment will suffer. And we've invested a lot of money in finding things to do not involving oil, so that money, would, in some way, have been wasted. On the face of it, it seems great. But very few people would actually gain anything of any great value. Perhaps the best we could do is not lose so hard as everyone else.

 

Again, this doesn't really go anywhere. It's more a case that I happened to be reading this post on Marginal Revolution, and though, hmm, what if? And also, that I'm a bit bored in the office, and I felt I should waste my time on something businessy, rather than just reading Engadget all day like normal.