Thanks Robert. I hope that your assessments are correct. I could not find much fault with the Economist article... as it is Politics which is keeping the oil price afloat.
It is interesting to note that Mexico and Russia, both non-OPEC countries but major producers, have been in discussion with OPEC members. In order to restore prices, NON OPEC countries must share in the burden of volume cuts.
I liken the situation to a Union which goes out on strike and after much sacrifice or hardship, they win some hard earned concessions or benefits. As a result, all the non-Union workers then enjoy the benefits as well (just an example, not meant to get into a 'Union' discussion). This, IMO, is not equitable. All groups must share in the cutback, and this includes shutting in ECONOMIC and PROFITABLE production and not just UN-ECONOMIC production.
There used to be a time, about 10 years or so ago, where many companies would simply shut in their production in order to preserve their reserves during periods of low commodity prices. This may have been prudent or 'long-term' thinking on the part of the managers. Instead, today we have companies that have a "we need to produce MORE because prices are LOW" philosophy. A dollar in the hand today is worth more than a dollar in the future.
This is with NA companies, or the "rich countries". Now, what if your country depends 80, or 90% on currency earned from the production. Can you afford to cut back? Probably not.
Either everybody gets together to help with the cutback or market forces will eventually prevail and the Economist article will hold true... IMO.
Mike |
