Saudi Arabia and other oil-producing states find themselves dancing the Limbo these days. Oil prices are near 10-year lows, a global economic downturn has reduced demand. In trying to balance the market, Saudi Arabia is reducing its production to 7.7 million barrels per day, according to this Reuters report in Asharq Alawsat.

The article notes that the country is able to run a deficit economy, the result of lower production, because of the surpluses it has accrued over the past few years. But it is constrained in just how much production can be cut. Saudi industry and energy production depend on natural gas which, in the Kingdom, is a by-product of oil production. Some plants can switch to burning crude oil rather than gas, the piece says. That would help in clearing excess oil now being unprofitably stored. But there are limits. The article also points out that Saudi management of its fields is both sophisticated and a refutation of the ‘peak oil’ criticisms.

Saudi Could Pump Less Oil Despite Budget, Gas Issues

DUBAI (Reuters) – Top oil exporter Saudi Arabia may cut output more as it seeks to put a floor under oil prices, in spite of the challenges that would pose to domestic energy supply and to its budget.

The kingdom plans to pump in February below its OPEC target of 8.05 million barrels per day (bpd), undershooting what was already a record OPEC supply cut agreed in December.

“The Saudis know that extraordinary times require extraordinary measures,” said David Kirsch of Washington-based PFC Energy.

“If measures are needed to stabilize the oil price and market at lower production levels, they’ll be prepared to take them. They are ready for a year of deficit and they can finance that for longer than other producers.”

As the oil exporters’ group races to match supply with falling demand, Saudi Oil Minister Ali al-Naimi has said he would do whatever it takes to balance the market.
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