There are several possible explanations for the reported fall in Saudi Arabia’s oil production in recent months. The official account is that the Kingdom is having a tough time finding buyers, according to the Saudi oil minister, Ali Naimi, via The Wall Street Journal (subscription required). In an interview after last week’s Opec meeting in Venezuela, Naimi said that his country’s crude production had fallen recently, which he says is a reflection of market conditions.
Nonetheless, when production slips in the world’s largest source of proven oil reserves, there is chatter about what’s really going on. Such is life in the pricing of a consumable good whose influence can hardly be overestimated on the global economy.
If Naimi’s line is correct, it would corroborate the prediction by others that the U.S. economy is slowing. As the world’s largest consumer of oil, even a marginal slump in America’s appetite for crude would necessarily have repercussions for Saudi production.
But there are competing theories in defining reality in the marketplace for the world’s most important commodity. For some, the slip in Saudi production of late is sure to give aid and support to the theory that a production peak is imminent in the Kingdom’s output. Matthew Simmons detailed this perspective in last year’s Twilight In The Desert: The Coming Saudi Oil Shock and the World Economy. Naimi’s latest comments only promise to stir the debate over peaking as it relates to Saudi Arabia.