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.