PRINCE ABDULAZIZ ON ENERGY MARKETS, OPEC LAWSUITS

C O N F I D E N T I A L SECTION 01 OF 02 RIYADH 000732



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E.O. 12958: DECL: 05/07/2018

TAGS: EPET, ENERG, ECON, NI, SA

SUBJECT: PRINCE ABDULAZIZ ON ENERGY MARKETS, OPEC LAWSUITS



Classified By: DCM Michael Gfoeller for reasons

1.4 (b) (c) and (d).



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Summary

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1. (C) In a May 6 meeting with Assistant Minister of

Petroleum (MinPet) Prince Abdulaziz bin Salman bin Abdulaziz

Al-Saud, he outlined the Ministry's latest thinking on

record-high crude prices, and OPEC's general refusal to budge

on possible production increases. Contrary a few months ago,

Prince Abdulaziz promised no relief on production or pricing.

He told the Energy Attache that the Ministry was "extremely

worried about demand destruction" in the U.S. as a result of

the latest financial crisis indicators. However, he also

fretted about squeezed refining margins in the U.S. and

globally, noting the grave impact on U.S. refining

utilization, currently running a scant 84 percent. He asked

if the USG could assist the current political situation in

Nigeria, where the production has collapsed to about a

million barrels per day (mbpd) during the last week as a

result of militant attacks and strikes. On the anti-OPEC

lawsuits, he explained Saudi Arabia continued to gather

amicus briefs for the now-consolidated cases in Texas. He

generally dismissed the further threat of NOPEC legislation,

saying if Congress could have passed the legislation, they

would have done so already.



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"Refining Margins Shocked,"

Refining Utilization Falling

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2. (C) Queried about Monday's record surge in crude prices

to above $120/barrel, Prince Abdulaziz noted, "We are

extremely worried about demand destruction, like in the early

1980s. Aramco is trying to sell more, but frankly there are

no buyers. We are discounting crudes, now we're at a $10

differential between West Texas Intermediate (WTI) and Dubai

Light, sometimes as much as a $12-$13 differential. Our

buyers still bought less in April than they did in March."

Prince Abdulaziz attributed the lack of willing buyers to the

current low refining margins. He indicated that that current

high crude prices were squeezing refining margins, as

refiners were unable to pass on the full brunt of crude

prices to the end consumer. "There are no refining margins,

refining margins have been shocked. It's purely technical,

not policy-induced. There are commercial impediments." The

consequence of poor refining margins was a declining refining

utilization rate. Prince Abdulaziz fretted, "the U.S.

refining utilization is 84 percent now, it's usually above 90

percent. The quickest relief would be if crude prices would

come down from these highs, if some of these political crises

would resolve." He queried if the USG could do anything to

assist current political situation in Nigeria.



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"Grey Area of Demand Destruction, We Must Hold Our Guard"

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3. (C) Prince Abdulaziz dis-missed speculation that King

Abdullah's press statements last week on Saudi Arabia

planning to cap production capacity at 12.5 million barrels

per day and leave oil in the ground for future generations

represented a new policy. He stated, "It's a statement of

fact, we need to be credible. We're pumping more than 9

million bpd, and right now, there is a grey area of demand

destruction. We must hold our guard, and wait and see what

happens with potential demand. Vice President Cheney was

very complimentary about our maintaining spare capacity. We

are honest with our commitments, we've been credible with our

program. The other producing countries should do it the way



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we do. If we announce new capacity, we budget for it, we

allocate for it, we acquire rigs, we have timelines. We don't

have pipedreams, if we make an announcement, we are certain

to supply it.



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Anti-OPEC Lawsuits and NOPEC Updates

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4. (C) On the issue of pending lawsuits against Saudi

Aramco and the national oil companies of other OPEC member

and oil producing nations, Prince Abdulaziz indicated:



--the lawsuits had been successfully consolidated into one

court in Texas;



--Saudi Arabia had worked with most other OPEC nations to

file amicus briefs with the court.



--To Iran's offer to file an amicus brief, Saudi Arabia had

said, "thanks, but no thanks," recognizing it probably would

not be helpful in a U.S. court;



--The Mexicans and Russians would also file amicus briefs.



--The Norwegians also now have a case filed against them in

Florida, so are reluctant to file an amicus brief.



Prince Abdulaziz believes the Departments of State and

Justice seem to be coming around to filing a Statement of

Interest (SOI) on behalf of the Saudi government in the

lawsuits, but noted the White House was still concerned about

the political optics of such a move. He felt such concerns

were mis-placed now, particularly with respect to possibly

fueling NOPEC legislation.



5. (C) Prince Abdulaziz indicated that if NOPEC had the

strength to pass it would have done so already, but it

hasn't, in large part he felt due to the Administration's

clear opposition. He argued the lawsuits and NOPEC had much

in common: "The Adminstration needs to be consistent in its

policy. The effects of the lawsuits are very similar to that

of NOPEC, but the plaintiffs are individual companies, rather

than the Attorney General." Prince Abdulaziz added, "Frankly

our Embassy feels that once people are aware of the

ramifications of such legislation, they'll be reluctant to

abuse it. The Minister has been very candid to explain the

ramifications, which would be far more serious for the U.S.

economy and energy markets than the Saudi markets."



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Comment

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6. (C) Prince Abdulaziz seemed more comfortable with the

state of play in the anti-OPEC lawsuits, his considerable

earlier anxiety much diminished. He appears to have largely

dis-missed NOPEC legislation as a credible threat for now.

We are concerned that the Saudi energy leadership does not

seem sufficiently well-advised on how the current high oil

price environment is fueling U.S. election year "resource

nationalism," and how this might impact our bilateral

relationship in future years. In this vein, King Abdullah's

recent comments that Saudi Arabia would cap its production

capacity at 12.5 million bpd and leave crude in the ground

for its children -- while representing no new initiative or

substance -- seemed ill-timed at a moment when the market is

looking for calming words from the world's energy market

leader.

GFOELLER