Identifier
Created
Classification
Origin
08RIYADH751
2008-05-12 14:24:00
CONFIDENTIAL
Embassy Riyadh
Cable title:
SAUDIS DISMISS CALLS FOR OPEC MEETING, REITERATE
how-toVZCZCXRO1945 OO RUEHDE RUEHDIR DE RUEHRH #0751/01 1331424 ZNY CCCCC ZZH O 121424Z MAY 08 FM AMEMBASSY RIYADH TO RUEHC/SECSTATE WASHDC IMMEDIATE 8356 RHEBAAA/DEPT OF ENERGY WASHINGTON DC IMMEDIATE INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE PRIORITY RUEHHH/OPEC COLLECTIVE PRIORITY RUEATRS/DEPT OF TREASURY WASHDC PRIORITY RHMFISS/HQ USCENTCOM MACDILL AFB FL PRIORITY RUEKDIA/DIA WASHINGTON DC PRIORITY RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY RUEAIIA/CIA WASHDC PRIORITY RHEHNSC/NSC WASHDC PRIORITY
C O N F I D E N T I A L SECTION 01 OF 02 RIYADH 000751
SIPDIS
NEA FOR DAS GGRAY
DEPT OF ENERGY PASS TO A/S KKOLEVAR, MWILLIAMSON, AND
DASAHEGBERG
TREASURY PASS TO A/S CLOWERY
CIA PASS TO TCOYNE
E.O. 12958: DECL: 05/11/2018
TAGS: EPET ENERG SA
SUBJECT: SAUDIS DISMISS CALLS FOR OPEC MEETING, REITERATE
ONLY THEY HAVE SPARE CAPACITY
REF: RIYADH 732
Classified By: DCM Michael Gfoeller for reasons
1.4 (b) (c) and (d).
-------
Summary
-------
C O N F I D E N T I A L SECTION 01 OF 02 RIYADH 000751
SIPDIS
NEA FOR DAS GGRAY
DEPT OF ENERGY PASS TO A/S KKOLEVAR, MWILLIAMSON, AND
DASAHEGBERG
TREASURY PASS TO A/S CLOWERY
CIA PASS TO TCOYNE
E.O. 12958: DECL: 05/11/2018
TAGS: EPET ENERG SA
SUBJECT: SAUDIS DISMISS CALLS FOR OPEC MEETING, REITERATE
ONLY THEY HAVE SPARE CAPACITY
REF: RIYADH 732
Classified By: DCM Michael Gfoeller for reasons
1.4 (b) (c) and (d).
--------------
Summary
--------------
1. (C) With NYMEX crude reaching $126-plus/barrel on May
9, the energy press speculated the production consensus in
OPEC was beginning to crack. On May 10, Assistant Minister
of Petroleum (MinPet) Prince Abdulaziz bin Salman bin
Abdulaziz Al-Saud told us he believes that excepting Saudi
Arabia, OPEC could muster only 200,000 bpd of spare capacity,
and was in no position to respond. Given that, he dismissed
calls for an OPEC meeting prior to September, asking why
Saudi Arabia would seek OPEC's permission to increase
production if it so chose. He added MinPet is not worried
about OPEC quotas now. Nonetheless, Prince Abdulaziz
maintains the market is well-supplied, and gave no indication
of a change in production policy. Likewise, the ExxonMobil
Saudi Arabia CEO (strictly protect) believes
the Saudis are unlikely to change their current production
policy, and will continue to hew to a well developed story
line regarding the sufficiency of crude in the markets.
--------------
Crude Price Spike Sets Off Flurry of
Press Speculation on OPEC Consensus
--------------
2. (SBU) After a week of near all-time record crude prices,
on May 8, Libyan OPEC Secretary General Abdullah al Badri
felt compelled to issue a public statement, stating there was
no shortage of oil in the market, but indicating OPEC would
act if needed. May 9 comments in Bloomberg by Libya's senior
oil official Shukri Ghanem that he favored an emergency OPEC
meeting prior to the planned September 9 meeting, fueled
press speculation that the production consensus in OPEC was
beginning to crack. "I expect a meeting before September. I
am not calling for one, but I would support one," noted
Ghanem.
-------------- --------------
Spare Capacity: 200,000 BPD At Best in Rest of OPEC
Nobody has Contacted Us About an OPEC Meeting
-------------- --------------
3. (C) In a May 10 conversation, Prince Abdulaziz reacted
to the OPEC press comments. He clarified his opinion on
tight spare capacity, stating, "Conventional wisdom says that
the rest of OPEC (excepting Saudi Arabia) has a million spare
barrels of capacity, but I doubt it very much. I think they
have 200,000 barrels at best." Prince Abdulaziz does not see
the point in convening an emergency OPEC meeting: "If you're
asking my personal view, it's not worth it, because there is
no excess capacity except for ours. Why would we ask Chavez
to agree to Saudi Arabia producing more oil? If we want to
do it, we can do it without their approval." Underscoring
the difficulty of moving the price in this
capacity-constrained environment, an un-named OPEC source
speaking to the press on May 9, indicated, "In my view, any
increase would have to be more than 500,000 barrels per day
to have an impact on the price."
4. (C) The same un-named source also hinted at scheduling
an OPEC meeting prior to the planned September 9 meeting.
Prince Abdulaziz noted that Saudi Arabia had not been
notified or consulted about a possible meeting. "We haven't
been told in any way about a meeting, there have been no
formal consultations on a meeting."
--------------
Prince Abdulaziz: NOPEC Remains a Threat
--------------
RIYADH 00000751 002 OF 002
5. (C) On a separate issue, Prince Abdulaziz asked us to
clarify that he has never underestimated the threat of NOPEC
legislation, but he considers the anti-OPEC lawsuits a more
imminent threat to Saudi Arabia's interests in terms of
timeline. Prince Abdulaziz re-interated he comprehends the
very real threat legislation such a NOPEC could represent to
the long-term U.S.-Saudi relationship.
-------------- --
ExxonMobil: Saudis Unlikely to Change Story Now
"Prolonged Period of Continued Volatility"
-------------- --
6. (C) ExxonMobil Saudi Arabia CEO Desmond Carr (strictly
protect) told Energy Attache on May 10 that he expects the
Saudis to continue to hew to their well developed story line
regarding the sufficiency of crude in the markets. MinPet
has typically pointed to speculation in the financial markets
to account for crude price run-ups. Carr stated, "All of the
signals we have received in Riyadh in recent days suggest the
Saudis are unlikely to change the story line they have
rehearsed so many times in public. I certainly do not expect
them to change their well-established version of current
market pressures, and medium term outlook. After all, it is
now an established fact of life that the Kingdom needs
$60/barrel-plus to pay their rapidly escalating current
bills, and I detect that some of the them live in fear that
any substantive change of current production/marketing policy
could trigger a free-fall that might crash through their
threshold of pain. All in all, the evolving business
environment continues to indicate a prolonged period of
continued volatility bedeviled by rising costs, with
downstream and chemicals suffering from deteriorating
margins."
--------------
Comment
--------------
7. (C) With the President due in Riyadh this week, we face
a challenging situation. Comments from MinPet, industry, and
OPEC point to the Saudis as the only members of OPEC with
sufficient spare capacity - perhaps - to move the market now.
However, per reftel, MinPet remains convinced that U.S.
demand will fall in coming months due to the economic
recession, layered on a normal seasonal drop in demand.
Convincing Saudi leadership that demand destruction in the
U.S. is not yet a fait accompli, but a development over which
they have influence, may be the one path to sway production
and pricing behavior. While MinPet has made up its mind,
higher-level Saudi leadership may yet be convinced that an
additional half a million barrels or more could impact market
psychology sufficiently to lower prices and forestall
significant U.S. demand destruction. Such destruction would
hurt not just the U.S., but Saudi Arabia's growing markets in
Asia.
GFOELLER
SIPDIS
NEA FOR DAS GGRAY
DEPT OF ENERGY PASS TO A/S KKOLEVAR, MWILLIAMSON, AND
DASAHEGBERG
TREASURY PASS TO A/S CLOWERY
CIA PASS TO TCOYNE
E.O. 12958: DECL: 05/11/2018
TAGS: EPET ENERG SA
SUBJECT: SAUDIS DISMISS CALLS FOR OPEC MEETING, REITERATE
ONLY THEY HAVE SPARE CAPACITY
REF: RIYADH 732
Classified By: DCM Michael Gfoeller for reasons
1.4 (b) (c) and (d).
--------------
Summary
--------------
1. (C) With NYMEX crude reaching $126-plus/barrel on May
9, the energy press speculated the production consensus in
OPEC was beginning to crack. On May 10, Assistant Minister
of Petroleum (MinPet) Prince Abdulaziz bin Salman bin
Abdulaziz Al-Saud told us he believes that excepting Saudi
Arabia, OPEC could muster only 200,000 bpd of spare capacity,
and was in no position to respond. Given that, he dismissed
calls for an OPEC meeting prior to September, asking why
Saudi Arabia would seek OPEC's permission to increase
production if it so chose. He added MinPet is not worried
about OPEC quotas now. Nonetheless, Prince Abdulaziz
maintains the market is well-supplied, and gave no indication
of a change in production policy. Likewise, the ExxonMobil
Saudi Arabia CEO (strictly protect) believes
the Saudis are unlikely to change their current production
policy, and will continue to hew to a well developed story
line regarding the sufficiency of crude in the markets.
--------------
Crude Price Spike Sets Off Flurry of
Press Speculation on OPEC Consensus
--------------
2. (SBU) After a week of near all-time record crude prices,
on May 8, Libyan OPEC Secretary General Abdullah al Badri
felt compelled to issue a public statement, stating there was
no shortage of oil in the market, but indicating OPEC would
act if needed. May 9 comments in Bloomberg by Libya's senior
oil official Shukri Ghanem that he favored an emergency OPEC
meeting prior to the planned September 9 meeting, fueled
press speculation that the production consensus in OPEC was
beginning to crack. "I expect a meeting before September. I
am not calling for one, but I would support one," noted
Ghanem.
-------------- --------------
Spare Capacity: 200,000 BPD At Best in Rest of OPEC
Nobody has Contacted Us About an OPEC Meeting
-------------- --------------
3. (C) In a May 10 conversation, Prince Abdulaziz reacted
to the OPEC press comments. He clarified his opinion on
tight spare capacity, stating, "Conventional wisdom says that
the rest of OPEC (excepting Saudi Arabia) has a million spare
barrels of capacity, but I doubt it very much. I think they
have 200,000 barrels at best." Prince Abdulaziz does not see
the point in convening an emergency OPEC meeting: "If you're
asking my personal view, it's not worth it, because there is
no excess capacity except for ours. Why would we ask Chavez
to agree to Saudi Arabia producing more oil? If we want to
do it, we can do it without their approval." Underscoring
the difficulty of moving the price in this
capacity-constrained environment, an un-named OPEC source
speaking to the press on May 9, indicated, "In my view, any
increase would have to be more than 500,000 barrels per day
to have an impact on the price."
4. (C) The same un-named source also hinted at scheduling
an OPEC meeting prior to the planned September 9 meeting.
Prince Abdulaziz noted that Saudi Arabia had not been
notified or consulted about a possible meeting. "We haven't
been told in any way about a meeting, there have been no
formal consultations on a meeting."
--------------
Prince Abdulaziz: NOPEC Remains a Threat
--------------
RIYADH 00000751 002 OF 002
5. (C) On a separate issue, Prince Abdulaziz asked us to
clarify that he has never underestimated the threat of NOPEC
legislation, but he considers the anti-OPEC lawsuits a more
imminent threat to Saudi Arabia's interests in terms of
timeline. Prince Abdulaziz re-interated he comprehends the
very real threat legislation such a NOPEC could represent to
the long-term U.S.-Saudi relationship.
-------------- --
ExxonMobil: Saudis Unlikely to Change Story Now
"Prolonged Period of Continued Volatility"
-------------- --
6. (C) ExxonMobil Saudi Arabia CEO Desmond Carr (strictly
protect) told Energy Attache on May 10 that he expects the
Saudis to continue to hew to their well developed story line
regarding the sufficiency of crude in the markets. MinPet
has typically pointed to speculation in the financial markets
to account for crude price run-ups. Carr stated, "All of the
signals we have received in Riyadh in recent days suggest the
Saudis are unlikely to change the story line they have
rehearsed so many times in public. I certainly do not expect
them to change their well-established version of current
market pressures, and medium term outlook. After all, it is
now an established fact of life that the Kingdom needs
$60/barrel-plus to pay their rapidly escalating current
bills, and I detect that some of the them live in fear that
any substantive change of current production/marketing policy
could trigger a free-fall that might crash through their
threshold of pain. All in all, the evolving business
environment continues to indicate a prolonged period of
continued volatility bedeviled by rising costs, with
downstream and chemicals suffering from deteriorating
margins."
--------------
Comment
--------------
7. (C) With the President due in Riyadh this week, we face
a challenging situation. Comments from MinPet, industry, and
OPEC point to the Saudis as the only members of OPEC with
sufficient spare capacity - perhaps - to move the market now.
However, per reftel, MinPet remains convinced that U.S.
demand will fall in coming months due to the economic
recession, layered on a normal seasonal drop in demand.
Convincing Saudi leadership that demand destruction in the
U.S. is not yet a fait accompli, but a development over which
they have influence, may be the one path to sway production
and pricing behavior. While MinPet has made up its mind,
higher-level Saudi leadership may yet be convinced that an
additional half a million barrels or more could impact market
psychology sufficiently to lower prices and forestall
significant U.S. demand destruction. Such destruction would
hurt not just the U.S., but Saudi Arabia's growing markets in
Asia.
GFOELLER