EIA: Saudis May Cut Production Should Oil Price Slide Continue

NEW YORK (Dow Jones Newswires), August 20, 2008

Saudi Arabia may cut oil production if prices continue to fall, the U.S. Energy Information Administration said Wednesday.

A production cut would remove one of the factors behind the 22% drop since oil prices hit a peak of $147.27 a barrel on July 11. Saudi Arabia pledged to increase production by a total of 550,000 barrels a day in May and June. Crude futures settled at $114.98 a barrel on the New York Mercantile Exchange on Wednesday.

Saudi Arabia's production increase had little immediate impact on the market, but prices began to fall as those barrels reached buyers, causing inventories to grow. U.S. oil inventories grew by 9.4 million barrels in the week ended August 15, the EIA said Wednesday, in the largest stock build since Marcy 2001.

"As prices drop, Saudi Arabia may cut back on its recent increase in production, which could halt the most recent price decline," the EIA said.

The EIA expects oil prices to trade in the $120-to-$130-a-barrel range for the rest of the year. The forecast hinges on a smaller decline in U.S. demand during the second half of the year, as well as an absence of major supply disruptions.

"Of course, whether or not this scenario unfolds is anyone's guess," the EIA said.

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