Saudi cut shows record oil defies market logic

Saudi Arabia has offered the most compelling proof yet that record high prices are divorced from the realities of supply and demand.

The world’s biggest crude exporter dared to make a huge cut in its production through the second quarter but growing demand for oil was still satisfied.
From July 2004 to March 2006 the kingdom had been pumping well in excess of nine million barrels per day, in part to keep the world’s top two consumers the US and China supplied.

In that time global oil stocks have risen to their highest in 20 years and US stocks are at an 8-year high — persuasive evidence that inventories have become a more reliable indicator of whether producers are pumping too much or too little.

According to the International Energy Agency, adviser to the West on energy, OECD countries had enough crude oil in reserve in March to keep their refineries running for 25.9 days — well above the norm. Crude oil stocks have risen further since then.

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