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I don't completely understand this.  With $100/bbl oil on the near-term event horizon, why would any producer increase production to sell their oil at $60/bbl?  Doesn't it make sense that the producers are reducing their production, waiting for the future much higher prices?

I suppose the usual answer is that the producers depend on the rest of the world's economy.  If the US and European economy suffers, the Venezuelan and Saudi economy suffers as well.  But how true is this, really?   Something like this seemed to have happened during the 70s Arab oil embargo.  At least the conventional wisdom is that the Saudis had a revelation that they can't just raise prices without consequences.  But now, with multiple sources, and with multiple markets, maybe this kind of market discipline is not possible.  Or, more likely, the producers believe it's not likely, and they are willing to take the risk that higher oil prices will lead to lower consumption and lower net profits.

by guleblanc on Tue Aug 9th, 2005 at 09:31:15 AM EST

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