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"Saudi's slash oil output" ... or did physics?

"The market is overbalanced ... Our production in February was 9.125 million barrels per day (bpd), in March it was 8.292 million bpd. In April we don't know yet, probably a little higher than March. The reason I gave you these numbers is to show you that the market is oversupplied," Naimi told reporters.
Saudi oil minister Ali al-Naimi, April 18, 2011

Does that statement make any sense?  Saudi production goes down in the face of rising demand, and prices skyrocket, and that shows the market is oversupplied???  Wouldn't prices have dropped drastically during that period if the market had been oversupplied?

Once again, it seems that Saudi oil production went from 9.125 MMBO/D in February, to 8.292 MMBO/D in March.  And remember (as we used to always tell the boss) February is always a "bad month" because it has fewer days.  Meanwhile, oil prices increased substantially in March.

You've got to ask yourself, why would Saudi oil minister al-Naimi issue this seemingly nonsensical press release?

Realize that the Saudis are our "partners" in trying to keep the world economy out of the ditch - they know it is not in their best interests to wreck the world economy, else demand for their product (oil) will go down.  So, they are not interested in $200 oil, or even $150 oil.  As the King said years ago, "You need the oil, we have the oil."  In exchange, we no doubt have security arrangements with them, and sell them billions in defense hardware.  (According to the WSJ today, Saudi Arabia had $41.3 billion in defense spending in 2009, compared to Iran's $8.6 billion in that year.)

So, back to the question.  If the "jig were up" - that is, if the onset of production rate decline was imminent, or even past tense - for the country generally believed to have the world's largest reserve capacity in terms of production rate, as well as the largest remaining reserves, then there might be one more ploy, one that might hold up for a few months (or not).  That would be to suggest that you were voluntarily cutting back production rate, rather than it happening despite your best efforts to increase it.  Or, put another way, that you were cutting the rate on purpose, rather than it dropping due to the inevitable decline in the production rate of a limited resource, aka Peak Oil.

One other thing:  Why would President Obama, in his "energy policy speech" of March 30, 2011, suddenly say we need to do more drilling for oil in the US, embrace shale gas and natural gas vehicles?  Previously President Obama only had room for renewables in his public speeches.  Continued oil and gas development, utilization of natural gas for transportation, conservation (of primary importance), renewables and sensible clean coal and nuclear make up the bulk of the often touted "all-of-the-above solution".  Often touted ... but not by President Obama!  Why the sudden shift in "policy"?  We already knew the answer, but hearing it from the President sent a chill up our spine, nonetheless.  It might be as close to a Presidential Peak Oil admission as we ever get - and likely as close as we really want.  It's time to stop petitioning, stop talking about why this or that won't work, and start focusing on what you can do, what your role is in the "all-of-the-above" solution.

Full press release here:   Saudi's slash output

Martin Payne is an upstream oil and gas professional with 30 years of experience. Past Chairman, Houston Chapter of the American Petroleum Institute (API). Member of American Society of Mechanical Engineers (ASME), Society of Petroleum Engineers (SPE), American Solar Energy Society (ASES), Association for the Study of Peak Oil (ASPO-USA).

Editorial Notes: Martin Payne is a long-time contributor to Energy Bulletin. -BA

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