Identifier
Created
Classification
Origin
05ALGIERS1325
2005-07-01 14:20:00
CONFIDENTIAL
Embassy Algiers
Cable title:  

KHELIL SAYS OIL PRICES TO STAY HIGH AS ALGERIA

Tags:  EPET ECON AG 
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This record is a partial extract of the original cable. The full text of the original cable is not available.
C O N F I D E N T I A L ALGIERS 001325 

SIPDIS

ENERGY FOR GINA ERICKSON

E.O. 12958: DECL: 07/01/2015
TAGS: EPET ECON AG
SUBJECT: KHELIL SAYS OIL PRICES TO STAY HIGH AS ALGERIA
LOOKS TO EXPAND REFINING CAPACITY


Classified By: Ambassador Richard W. Erdman, reasons 1.4(b)(d).

SUMMARY
-------

C O N F I D E N T I A L ALGIERS 001325

SIPDIS

ENERGY FOR GINA ERICKSON

E.O. 12958: DECL: 07/01/2015
TAGS: EPET ECON AG
SUBJECT: KHELIL SAYS OIL PRICES TO STAY HIGH AS ALGERIA
LOOKS TO EXPAND REFINING CAPACITY


Classified By: Ambassador Richard W. Erdman, reasons 1.4(b)(d).

SUMMARY
--------------


1. (SBU) Energy Minister Chakib Khelil in recent comments
expressed confidence that oil prices would not drop below $50
per barrel, and he did not rule out barrel prices of $80 or
even higher, which he said the international economy could
withstand. Algeria's windfall oil revenue topped $17 billion
in the first five months of 2005. Khelil confirmed to
Ambassador that Algeria would increase its own refinery
capacity in response to current supply constraints on the
market, but the health of the U.S. market was another
important factor in the direction of oil prices. Clarifying
his unexpected June 4 caution to a U.S. oil company during a
trade fair event speech, Khelil claimed that an unnamed firm
had engaged in anti-competitive practices in oil field
bidding. End Summary.

OIL PRICES TO STAY ABOVE $50/b
WITH NO HARM TO GLOBAL ECONOMY
--------------


2. (U) Energy Minister Khelil said in public comments June 25
that oil prices would not go below $50 per barrel this year
due to lack of refinery capacity, continued capacity
pressures during the summer, and the need for refineries to
prepare stocks for winter. Responding to a reporter's
question about whether the price of crude oil could attain
$100, Khelil said, "Everything could happen." China's
continued growth would put further pressure on oil prices,
while OPEC's decision to increase production would not affect
prices because of the refining constraints.


3. (U) Khelil earlier said June 23 that rising oil prices
have not hurt the international economy, and the market could
withstand prices of $80/barrel or even $100/barrel, since
these increases were not accompanied by inflation or an
economic crisis. Oil consuming regions also had different
perspectives on pricing. China's reliance on capital and
labor, he noted, made energy matters a secondary concern for
the Chinese. For its part, the EU was paying the Euro
equivalent of $35 per barrel, and as long as the Euro
remained strong the EU would not feel any changes in the
market. Khelil commented that high oil prices led to
Algeria's massive $17.2 billion in oil income for the period
January through May 2005.

ALGERIA TO INCREASE REFINERY
CAPACITY OVER NEXT 2-3 YEARS
--------------


4. (SBU) In a June 25 conversation with Ambassador, Khelil
noted that Yukos' difficulties were reducing supplies to the
market. In response to this and other market supply
pressures, Algeria would bring new refinery capacity online
in two to three years, including a 300,000 bpd refinery for
which a tender had just been announced. This increased
capacity would significantly increase Algeria's refined oil
exports. Until then, limited refinery capacity would
continue to be a serious constraint, and the health of the
U.S. market would continue to play a role in pricing. A
recession in the U.S., Khelil acknowledged, would lead to a
drop in Chinese demand for oil, implying a potential drop in
prices.

U.S. COMPANY CITED IN
ANTI-COMPETITIVE PRACTICES
--------------


5. (C) Ambassador inquired June 25 with Minister Khelil about
his remarks at the June 4 U.S.-Algeria Business Council
"Energy and Water Symposium," in which he mentioned
unspecified, objectionable practices by an unnamed foreign
energy firm. Khelil confirmed to Ambassador that his
intention had been to caution a firm that was acting to
restrict competition by forbidding its non-U.S. partners to
submit bids for oil block tenders. Sonatrach had uncovered
this pressure tactic while questioning some firms about why
they had not participated in the bidding. In a subsequent
conversation with a U.S. energy firm, Ambassador was told
that a partnerships agreement gave the partnership first
right of refusal in making a bid jointly, but that individual
partners were free to go ahead and tender a bid if the joint
partnership declined to do so.

ERDMAN