Trouble in the Desert?

James Hamilton thinks so:

Subsequent to the 2008 peak in oil prices, the Saudis cut production, consistent with their historical role of moderating the extent of price declines. Saudi Oil Minister Ali al-Naimi claims that the kingdom currently has 3.5 mb/d excess capacity, though many analysts have expressed doubts about those claims.
An increase of a million barrels per day in Saudi production relative to reported November levels, some of which may have in fact already been implemented, would put them back up to where they were in July of 2008. If all of Libyan production gets knocked out, we'd need 1.8 mb/d to replace it. If the Saudis weren't able or willing to go above those production levels in 2008 when oil was selling for over $140 a barrel, why would you expect them to do so now with West Texas only at $106?
My answer is, I don't.

The comments are pretty chilling too.  My position in 2008 was that the Saudis weren't raising production because they can't.  It seems that this might be the case.