Two Cautionary Notes on Saudi Led Oil Deal

Two points about the so called deal on oil production :

1. OPEC members do not have a good record of keeping their promises. As the Wall Street Journal reports:

“OPEC relies on a fragile honor system to enforce its production quotas and so member states have frequently cheated by not sticking to their production pledges. The cartel has tried to implement 17 deals since 1982 and in all those instances OPEC members have reduced their outputs by an average of 60 %, according to Goldman Sachs.”

2. The US is not a part of the non OPEC deal . As a matter of fact the American drill rig count has increased from a low of 300 in July to almost 500 today according to Baker Hughes.  So look for increased US shale production if the price stays over $50. This will keep the drag on prices rising significantly I suspect.

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