The price of crude oil has been shown to have significant impact on the global economy, and in the current and somewhat fragile state of the various parts of that economy, the lower prices help. Yet Stuart Staniford has commented that given the Saudi need for income to hold off “Arab Spring” dissatisfaction, they are unlikely to let prices fall too far before cutting production, since even a 10% reduction in output could raise prices 20%, thereby resolving their future income concerns. This reflects well the role of the Texas Railroad Commission back when it controlled US production in order to sustain an acceptable price for oil. But that role collapsed when overall US production was no longer able to spring to the rescue when demand rose and US production could not, passing the control over prices to OPEC and more particularly the Kingdom of Saudi Arabia (KSA), who have shown a willingness to control output to ensure that it proximately followed demand and has kept prices within an acceptable range for them. Their recent increase in production to offset possible Iranian sanctions, however, is likely to be transient, since – apart from annoying Iran, it has also driven prices below that benchmark.

via The Oil Drum | Tech Talk – Saudi Arabia and Natural Gas Liquids.