James Hamilton of Econbrowser comments on a WSJ article which reported that April Saudi oil production was 400,000 barrels below its two-year average volume. James asks: why, when oil is selling at over $70 per barrel, would the Saudis cut production?
Proposed explanations include:
- a lack of buyers at the high asking prices
- a monopolist cutting back production to raise the price
- the Saudis don’t have as much in the way of reserves as they’ve been telling us
- distribution bottleneck
- the Saudis are sending a message to the Iranians that they’ll meet an embargo of Iranian oil with Saudi oil
James addresses the first two explanations in his post and finds them wanting.
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That Saudi report struck me as suspicious, too; glad to see I wasn’t the only one. Could have serious implications for the near future – though I suppose it’s good news for alternative fuels.
FYI My email is attached to the post.