Is Saudi Output Cut a Response to U.S. Oil Boom?

  • 25 Jan 2013
  • By Petromatrix GmbH
  • Topics: Energy

Reduction a Surprise Given Iran Sanctions

Some want but can't; some can but won't -- This is how we can best describe the current OPEC crude supplies, according to Petromatrix GmbH, a Switzerland-based consultant.

Saudi Arabia's production in December was down about 800,000 barrels compared with the same month in 2011, a decline similar to that of Iran, which has been hindered by sanctions over its nuclear program.

This could be surprising, "given that Saudi Arabia was supposed to be the supply cushion to replace the lost Iranian barrels," Petromatrix said in a recent report. "But it highlights the fact that there is not enough room in global demand to accommodate both an increase of production from other OPEC countries and from the U.S. without a negative price impact."

Saudi Arabia does not like to be described as managing supplies to manage prices, and therefore was quick to explain that the December decline was a function of a seasonal drop in domestic and international demand, and not due to a willingness to control prices. Still, this raises the question of why Saudi Arabia would be cutting output when the world is still trying to enforce tougher sanctions against Iran, Petromatrix said.

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