Kemp: The Saudi Oil Enigma
More generally, the close military and strategic links have not translated into an agreement on oil prices and production: it is emphatically not the case that pricing policy is the result of discreet negotiations between Washington and Riyadh. To their chagrin, a succession of U.S. presidents has discovered the limits of their influence over the Saudis when it comes to oil prices and production.
Questions About Capacity
Diplomats and even some economists often assert Saudi Arabia upholds its part of the bargain, in part, by holding spare production capacity with which to meet disruptions in oil supplies from other producers. Only Saudi Arabia has the financial capability and the foresight to invest in spare capacity to help stabilise global oil prices.
The problem is that there is almost no evidence to support this claim. Since the kingdom's exports peaked at almost 10 million barrels per day in 1980, most of the spare capacity has been in the form of reduced output from older fields as new ones have come onstream.
Most spare capacity appears to have been the result of past errors in forecasting oil demand and efforts to increase the amount of oil eventually recovered by lowering production rates from ageing fields like Ghawar to sustain reservoir energy and prevent water inundating the wells while bringing on new fields like Manifa.
Nearly all of the kingdom's reported spare capacity has followed a downturn in prices and demand, notably during the 1980s and 1990s, which suggests that capacity is the result of planning errors rather than deliberate policy.
There is no evidence that Saudi Arabia has deliberately developed large new fields simply to allow them to left idle "just in case" there is a supply interruption elsewhere in the world.
Reluctant Swing Producer
Saudi Arabia is often described as the oil market's "swing producer", a role which senior policymakers are said to dislike after the trauma of seeing exports shrivel from almost 10 million barrels per day in 1980 to less than 3 million in 1985.
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