I certainly hope the 'good news' is right. However, just like your posting/news indicates, prior history has not been that great for following the production cuts promised.
Even at todays outputs, we cannot forget that Saudi picked up Iraqs share of production when Iraq was cut off from the world markets. Saudi picked up an additional 3 MM BBL/day production to approximately 8.3 MMBBL/D which is why Iran is so adamant that Saudi come back to pre-Iraq levels. Now, with Iraq producing again the oversupply is extreme.... and if Iraq ever gets back to its 3 MM+ BBL/day, then it would be a severe glut because even if Saudi went back to 5.0 MM they would then need to cut even more... and I doubt they can handle a cut of 50% or more from todays volumes.
What is helping is the cuts from more expensive non-OPEC production.
This is why the 'Economist' article is so alarming. If we believe in 'Globalization' and that we are in a competitive 'global' market, what is stopping oil from hitting $5.00 other than politics? Today, Duracell will move an entire battery production line from NA to Mexico; shoe manufaturers will move to 3rd world countries; LEVI's is doing it now after closing 15 manufacturing facilities in NA and NIKE did it a long time ago; car manufacturers have been doing it for ever; mining companies the same.... why not oil?
If Oil is a produced product, or manufactured good, like any of the preceding examples, then whoever is most efficient and can manufacture/produce it the cheapest will/can control the majority market share. No one can compete with production costs in the Middle East.
It is only Politics and high level deals that can rescue the prices and keep them artificially high, while market forces are driving the prices lower. DeBeers does the same thing with Diamonds.
$20.00 BBL * 10,000 BBL = $200,000 income
$2.00 BBL * 100,000 BBL = $200,00 income
Which is it going to be? The end result to the producer is the same...
Personally, I feel that the price rise will be short lived, unfortunately...
Many also feel that natural gas prices are immune to this scenario. Not true... natural gas can be imported by tankers similarly to crude oil. Liquified Natural Gas (LNG) is competitive with crude oil around $12.00/BBL. (ball park, rule of thumb number...)
Mike
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