The Oil Drum

At the beginning of this year, Robert, WestTexas and others were engaged in one of our ongoing debates about whether Saudi Arabia had peaked. I asked Robert and WT if they could supply a criteria which would definitely falsify their theories; in other words, was there a theoretical future set of events that would persuade them to believe they were wrong?

Robert was kind enough to give a very crisp response. He said if we saw inventories declining, prices increasing and no response from Saudi Arabia, that would falsify his theory. WT didn't give a direct response, but it was clear from his posts that if Saudi surpassed their old peak of 9.6 million barrels a day, he would be wrong. What actually transpired serves to illustrate how difficult it is to make good predictions about the future.

One thing Robert, WT, me, and probably most all of us thought back in January was that we would know the truth by the end of summer. We all thought summer driving season would push up demand and put the Saudis to the test.

What really happened was that inventories did start to decline in the spring, but most all of the decline was reflected in gasoline rather than crude. Thus, OPEC could plausibly point to adequate supply, but refining problems. By the time it became apparent that crude supplies might also be a problem, we had reached the end of summer and OPEC then announced a half million barrel increase to take effect in November.

The Saudi reaction has turned out to be too little and too late to stop the price run-up. It puts Robert's bet on $100 oil in jeopardy even though he hasn't yet been proven wrong on Saudi peaking. Furthermore, we are still looking to the future to see what they really produce as opposed to what they say, and neither Robert nor WT has yet had his theory definitively falsified.