Mexico's Cantarrell Field And Saudi Arabia's Decision

Two articles worth reading on the future oil production and prices are as follows:

• The Wall Street Journal: Mexico's Oil Output Cools (subscription required); and
• The New York Times: Saudi Officials Seek to Temper the Price of Oil (free registration required).

According to the WSJ, oil production from Cantarell, world's second largest in terms of production at the start of last year, is falling faster than anticipated. Production in December was only 1.5 million barrels per day, down from an expected 1.99 million barrels. The article goes on to suggest that the problems associated with Cantarell might hold grave consequences for Mexico and are symptomatic of problems are most of the world's large but aging oil fields.

The NY Times article suggests that Saudi Arabia has sent signals that it wants oil prices near the $50 mark. The article provides several political factors that might be influencing Saudi Arabia's decision to keep oil prices lower than they have been in the recent past.

As I have stated in the past, it is impossible to understand where short term oil prices will be. Longer term, however, higher prices are likely to prevail, as older fields are unable to sustain their production. There have been no new large elephant fields discovered in decades, and the oil from oil sands, while plentiful, are expensive and are not well suited to gasoline production.

Both articles are worthwhile reading. The Cantarell field is important not only to the world oil market, but also to Mexico and the U.S. So it will be interesting to follow its developments. Saudi Arabia's decision to keep prices lower is interesting.