Red-Hot Resources

"Luck is not chance, it’s toil; fortune’s expensive smile is earned.”

Wednesday, January 31, 2007

With Friends Like These...

Saudi Arabia plans to cut 158,000 barrels of oil production a day starting tomorrow, in line with agreed Organization of Petroleum Exporting Countries cuts, The Wall Street Journal reports. Traders took note because the reinforcement came after Saudi Arabia's ambassador to the U.S. said current prices are acceptable, increasing doubt about further cuts and sending prices lower Monday.

In total, Saudi Arabia has cut one million barrels of production over a six-month period. That's nearly double the total cuts it agreed to make under two output reductions hammered out by OPEC.

According to the Wall Street Journal Saudi oil officials who manage the kingdom's production say more cuts are on the way.

My analysis -- this tells us a couple things and one thing to keep our eye on ...

  1. The rumors we've been hearing that Saudi Arabia might push oil prices down to punish Iran for interfering in Iraq are nothing more than a neocon wet dream.
  2. $55 seems to have become the new lower limit for Saudia Arabia -- one they'll defend.
  3. We'll have to watch to see if Saudi Arabia keeps pouring money into new oil field development. The Saudis have been pumping money into the desert sand (and the fields offshore) but have only been able to maintain production, not increase it. If they really have surplus oil, they'll start cutting back on that expensive investment.

Labels: ,

Check out my new gold and energy blog at