UAEG PREDICTS NO MAJOR MOVEMENT AT THE JUNE

1. (U) Classified by Acting DCM Thomas E. Williams,
for reasons 1.5 (B) and (D).



2. (C) UAE Ministry of Petroleum Director of Economic
Affairs and OPEC delegate Hamdan Al-Akbari told Acting
DCM June 9 that he believes oil market supply and
demand are balanced, current pricing is "adequate,"
and cuts in OPEC quotas are not required at this time.
Almost all OPEC members which have the capacity to do
so continue to overproduce their quotas, despite the
last OPEC meeting's decision to raise quotas in hopes
members would curb output in accordance with the new
agreed output levels. (Note: Indeed, open source
reports indicate that the UAE is overproducing its
quota by as much as 130,000 barrels per day. End
note.) Al-Akbari thought it very possible that the
session would leave current quota levels untouched,
but might once again call on members to bring actual
production back into line with the agreed levels. The
Emirati official suggested that concern about non-OPEC
market share would likely militate against any cut in
quotas.



3. (C) According to Al-Akbari, the June 11 meeting
was scheduled because of concerns about potential wild
price fluctuations resulting from the Iraq war (A/DCM
agreed that pessimists had predicted prices would
reach 40 USD a barrel during the war, and might crash
to 7-8 USD once the conflict ended). While Iraq's
future impact on the oil market remains a concern, Al-
Akbari thought that the June 11 meeting would be
guided more by stock levels in the United States and
Europe, Venezuela's return to production, and would
focus on potential near-term downward pressures on
prices. Iraq will likely become a major factor later
this year when its oil capabilities and production
schedule become clearer.



4. (C) A/DCM noted that with much of the OECD still
struggling to sustain positive economic growth, and
with the advent of the summer driving season in the
United States, it would be helpful if OPEC could
refrain from actions or statements that could
jeopardize the modest recovery which appears to be
underway. While the oil intensity of OECD economies
has diminished markedly over the past decades, oil
prices continued to have a psychological impact on
consumer and even market sentiment.

Wahba