Saudi Arabia Speaks and the World Yawns

It wasn't too long ago that when Saudi Arabia talked about oil the world listened. A simple suggestion that they would raise or lower production would send the price of a barrel of oil rising or plunging. Not so anymore. On August 11th, with the price of oil hovering near the $45 a barrel level, the Saudis announced that they would increase production. This was an attempt to halt the increase in price and in fact reduce it, in all probability to help their good friend George W. Bush. After a brief drop of a few cents oil ended up higher for the day. The next day the price found a new high, approaching $46 dollars a barrel. So what happened? Jon D. Markman asks the question Is Saudi Arabia running out of oil?

When oil prices have doubled to $80 and a second great depression threatens global political stability, the president of the United States will impanel a Sept. 11-style commission to explain the intelligence and policy failures that led to the crisis. The verdict will be familiar: The stunning blow to the world economy brought about by the sudden, unexpected depletion of fossil fuel should've been anticipated and prevented.

When that day comes -- in five years or perhaps 20, who knows -- many of the key exhibits will have been penned by Matthew Simmons, a Houston energy analyst and banker at Simmons & Co. International.

Simmons is now shouting from the rooftops -- writing think-tank white papers, giving speeches and finishing a book set for publication next year -- that the world is fast running out of affordable oil and gas, and that no amount of Middle Eastern pumping can bail us out.

While much of the so-called "peak oil" [see Oil, Half Way To Empty] story is well known, what's news is Simmons' startling claim, based on personal analysis, that Saudi Arabia's pumping capacity is in decline.

There was a time when Saudi Arabia could make up for any production shortfall anywhere else in the world. Those days are over in part at least because world demand has increased. Nobody really knows how much oil the Saudi Arabia has left, it's a state secret.
Markman does point out that it may be to Simmons' advantage to foster this fear since it will help his business.