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.
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.