oil up over 10% in past few days, I'm not buying the rally

When waiting for a tremendous bargain, as oil stocks go down and down, there is a big temptation to buy when we get an up move for fear of missing the opportunity.  I don't think we are there yet.  Capitalism works because a decline in prices sends a signal to producers to produce less.  There is a saying in the world of commodities: "the cure for high prices is high prices".  And of course the corollary of this is that the cure for low prices is low prices.  I do think that we are now below the long run average price that oil needs to be at to spur sufficient production to meet world demand.  But I don't think we are as far below that price as some seem to think, and certainly oil does not have to be at $90 per barrel or higher.   We have  too much production for world demand now.  In the USA, one of the highest cost producers, where you would expect to see the biggest declines after a price correction, we have seen big capex cuts.  But not a single producer has signaled that their production will decline.  In fact, monthly data from EIA continues to show production increases, and we haven't even started to see the rate of increase slow (the 2nd derivative of oil production, if you like).

Rig count cuts and capex cuts are not enough to solve the short term problem.  BUT they may be enough to convince the Saudis to try to boost the prices a bit towards $70 or so.  If they think that their actions have had the desired effect of reducing long term supply in the USA and other high cost areas, then perhaps they will try to create the conditions for a price rise. They are still talking down the price for now.   I don't think we are there yet, and I'm not buying.