Ready Player One and a Dystopian View of Future Oil Prices

I read Ready Player One recently and I enjoyed it; it was a pretty fast read and I finished it in a day. It presents a view of the future where the possibilities allowed by a virtual reality world surpass those of the real world, so most people spend as much time as possible connected to a system called OASIS.

One part of the book's prediction of the future bothered me. The author describes the price of oil skyrocketing, causing the decay of American roads, and cities with cars stacked around their exteriors, as the unaffordable price of oil made them too expensive to drive.

This bothered me and my economics degree. People hugely value the ability to move around and travel for many reasons:

  • For reasons we cannot yet explain in-classroom teaching produces better results than online teaching, meaning the teacher and students need to travel to the same place (There's a study showing this result but I don't know where it is).

  • People migrate for work, to bring their skills to an area of the world where there's more demand for them, see for example the millions of Filipinos who work overseas. People will still need food delivered and haircuts and their plumbing fixed and their cars driven even if they spend twelve hours a day with a headset strapped to their face.

  • The same is mostly true of relationships and friendship bonding; the face to face time is a costly signal that helps show the other person you care and are committed to the relationship.

  • People enjoy traveling for tourism, to see beaches, mountains, etc. Sure virtual reality could put you on a beach and it might be "good enough" but a device that can replicate the feeling of the sand beneath your toes is still a ways away.

And many, many more; sure, virtual reality may chip away at the margins here but there still will be a vast demand for people to fly around the planet.

The vast demand means that there's a huge incentive for folks to figure out cost-effective ways to get around. If gas gets too expensive, we see people figure out ways to create gas from other minerals, as the large expansion of activity in North Dakota shows. Or there will be more of an incentive to figure out how to store solar energy to use at night, or more of an incentive to use electric power to get around, and we'd see more trains and less planes.

How can we turn this into a testable prediction? One obvious answer is to look at the price of oil. The author writes that the price will be sky-high, causing people to abandon their cars. Well another group of people bet on the price of oil every day. I tend to trust them more, because if they are wrong, they will lose tons of money.

Data from the CME Group indicates that the best prediction for the price of oil in December 2022 is $86.20, lower than it is today. Now, there are some caveats that would affect this. There are reasons to believe the futures price might be lower than the true price in 2026, because a buyer today is assuming risk and the seller is shedding it. On the flip side at least one source states that oil futures with long maturities tend to be priced higher than the actual price.

So that's the best prediction of the price of oil 8 years from now - about what it is today, not drastically higher. I would encourage anyone who thinks oil will be very expensive (including the author) to bet on that outcome, and profit from all of the people who currently think it will be cheap.

In general we look to science fiction authors for a vision of what the future will look like. In some places they may be better than average at predicting what the future will look like. But clearly in others, they're not.

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