In my article on Sunday, I referenced a NY Times article that claimed Saudi Arabia was content to let oil prices fall to about $50. In today's Wall Street Journal is an article Saudis to Pare Oil Output Again (subscription required).
Saudi Arabia, which already has aggressively shaved its oil output in a battle to shore up prices, is tightening its spigots further this week.
A senior Saudi oil official said yesterday the kingdom had advised its customers of the impending 158,000 barrel-a-day cut, which takes effect Feb. 1. The reductions, part of a broader campaign by the Organization of Petroleum Exporting Countries, are intended to shrink inventories of oil that had ballooned last year as demand growth for petroleum faltered.
"After these cuts, our oil production will have declined by about one million barrels a day since last summer," said the senior Saudi oil official.
If Saudi Arabia or other OPEC members are deliberately sending out confusing signals, then they are succeeding masterfully and it is having its intended effect. People are becoming increasingly uncertain. Continued and increased uncertainty will slow other non-OPEC large megaprojects, such as the oil sands activities in Alberta. Investors prefer steady and predictable prices. Perhaps OPEC is going to start throwing some volatility into the picture to keep everyone off balance. If OPEC wanted to send a strong signal of uncertainty, it could drive prices into the low $40s for several months. And then just as the world began to reacclimatize itself to lower energy prices, OPEC could bring the prices back into the $60s.
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