The Oil Drum is a variant of number two. The logic of the link above, despite impressive-looking graphs, doesn't hold much water.
First, Oil Minister Ali Naimi did say in November that the Saudis would go along with OPEC production cuts, a factoid the author neglects to mention. The reason for this might be OPEC solidarity, including Persian/Arabian Gulf regional politics. This Gulfie perspective includes the first visit in living memory of an Iranian highest-level official [President Ahmedinejad] to Saudi Arabia. Not even in the days of the Shah did an Iranian head-of-state or senior official visit Saudi Arabia. Indeed, I don't believe that this has happened for centuries. Of course, The Oil Drum neglects to mention this tidbit while sententiously intoning
The entire "production cut" may be a public relations exercise to disguise other processes.
So it may be a political move to keep a nasty war in Iraq from expanding, and increasing Saudi influence in the region by enticing the President of Iran to the Kingdom, using the production cuts as an agreed precondition, rather than an elaborate ruse cunningly contrived to cover over oilfield deterioration. A Saudi/Iran relationship automatically increases the influence of the Saudis in any overrall Middle East scenario.
Just a quibble, but one must remember that an entire cottage industry has developed over the decades of those who write like one commenter:
Saudi [sic] went deep into the heart of the Rub al-Khali to find this little patch of oil. The “Rub al-Kaali [sic] represents one of the most extreme areas in the world with summer temperatures shifting from below 0ºC at night to over 60ºC at noon. Dunes can reach heights of more than 300 metres.” Needless to say this is one of the most inhospitable places in the world to drill wells and to lay pipelines. Yet this represents the extremes Saudi will go to in order to produce just a little more oil. But they are said to have 264.2 billion barrels of proven reserves.
Proven reserves means they know exactly where this oil is. To produce it, they would just have to go to a spot they already have plotted on the map, sink a well and produce more oil. Yet they do not do this, they instead go deep into the Rub al-Khali, search for years, (they were exploring the Rub al-Khali when I was there over twenty years ago), until they find a tiny patch of oil, then crow about it to all the world. Something here just does not make any sense.
First of all, the "term of art" is "proven recoverable reserves." Recoverable means at a rate that is within the boundaries of current technology. Second, the tendentious paragraphs above neglect to mention that Saudi Aramco has found dozens of oilfields in the Rub' Al-Khali. The Saudis have another quarter-billion "probable" reserves, according to Al Jumu'ah. And another indeterminate amount of "possible" reserves, so draw your own conclusions. The only thing that doesn't make any sense is making a big to-do about something the Saudis have been doing for decades. [Note the semantics of "crow about it to all the world." The announcements of new finds in the Rub' al Khali have been taking place since the mid-seventies. As well as finds elsewhere in the Kingdom. The only reason the Saudis don't go into production is because of something these cottage-industry Saudi-bashers always overlook: economics.
The Oil Drum neglects to mention that Saudi Arabia is the only country in the world where the marginal barrel is the least expensive barrel. It costs around $3/barrel to extract a barrel of crude from Ghawar, which is a lake of oil over 120 miles in width. Why extract from the Empty Quarter at $30/barrel when Ghawar produces it for $3?
This cottage industry regularly churns out alarmist predictions about the Saudis, and by extension, the entire world's oil production industry, on a metronomic basis. Sort of like global warming or global cooling. Back when I was first in Saudi Arabia, global cooling was all the rage. Last time I was there, global warming was the favorite sky-is-falling trope/meme. The metronome again.
Finally, the writer neglected to mention two salient facts about the current industry. The Iranians are losing much of their production capacity due to inefficiency and incompetence and they need higher oil prices to finance their ambitious weaponizing of their developing nuclear capacity. Second, the Iranians have to import refined products, again due to poor planning and incompetent maintenance of their own refineries.
My bet is that the President of Iran might be visiting the Saudis to ask for an allocation of refined product from the Shell Export Refinery at Jubail, which I have visited on a couple of occasions. This would alleviate expensive imports from alternative sources, which are gouging the Iranians in expensive crude/refined product swaps at the moment.
The Saudis may be lowering their production, but they will retain a large cushion of excess capacity and the ability to increase production for decades to come. In any event, the Saudi production cuts are not the result of diminished production capacity, though some eventually will occur.
As for the world running out of oil, the head of the Iraqi Geological Survey at SOMO in Baghdad told me in 1988 that Iraq had 200 million barrels of proven reserves, but not recoverable at present prices [back then in the teens of dollars] and he also told me that the Mesopotamian Foredeep had not been extensively explored because his geological teams did not like going out into the desert! So Iraq could possibly have as much oil as Saudi Arabia, but no one really knows!