US embassy cable - 04ABUDHABI3095

C O N F I D E N T I A L ABU DHABI 003095 
 
SIPDIS 
 
DEPT FOR NEA/RA, NEA/ARP, INR/EC, EB/IEP, EB/CBA 
USDOE FOR INT'L AFFAIRS  OBURN, ALSO CALIENDO 
USDOE FOR OFFICE OF THE SECRETARY  HONDA HUDOME 
USDOC FOR 1000/OC/ 
USDOC FOR 4520/ITA/IEP/ONE 
USDOC FOR 4530/ITA/MAC/ONE/DGUGLIELMI 
4500/ITA/MAC/DAS/WILLIAMSON 
3131/CS/OIO/ANESA 
 
E.O. 12958: DECL 05/26/2014 
TAGS: EPET, ENRG, ECON, TC 
SUBJECT:  OPEC TO RAISE PRODUCTON QUOTA? 
 
 
(U) Classified by Ambassador Michele Sison for reasons 1.5 
(B) and (D). 
 
1. (C) Summary: Ministry of Petroleum advisor Dr. 
Ibrahim Ismail (protect) told EconChief that he 
thought that  OPEC Ministers would raise the 
production quota by 1-1.5 mb/d to reflect at least 
some of OPEC's current overproduction and to help 
calm the markets.  He also said that the ministers 
would consider whether or not to raise the OPEC 
price band from its current level to encompass the 
average price this year OPEC's Oil Basket. (The 
OPEC Oil Basket is averaging $34 this year.)  He 
noted that, except for Saudi Arabia and, to a much 
lesser extent, the UAE, OPEC members were producing 
at capacity.  End Summary. 
 
2. (C) EconChief met with Dr. Ibrahim Ismail, the 
Economic Advisor to the Minister of Petroleum on 
September 13.  Ismail said that OPEC (excluding 
Iraq) was already producing 1.5 mb/d  .8 mb/d 
above quota and that most were producing at or near 
capacity.  He added that he thought that OPEC 
ministers would decide to "legitimize" the 
overproduction with a decision to raise the 
production quota by 1-1.5 mb/d.  He thought that 
this action would help send a calming signal to the 
markets and might/might encourage some producers to 
bring more production on line. 
 
3. (C) Dr. Ismail also said that that the oil 
ministers would also discuss whether to raise 
OPEC's price band to where it included the $34 
price that OPEC's oil basket has averaged over the 
last year.  He stated that he did not know whether 
OPEC ministers would decide to raise the price band 
at this or a subsequent meeting. He acknowledged 
that it would send a mixed signal to the market if 
OPEC raised both the price band and the production 
quota.  He argued, however, that the current price 
band was unrealistic both because it did not 
account for inflation and the decline in the value 
of the dollar and because current prices were 
averaging well above the band, despite OPEC's 
efforts.  For OPEC, he said it would be a matter of 
credibility to have a price band that reflected 
reality. 
 
4. (C) Ismail said that he still thought the supply 
and demand fundamentals were about right and that a 
lot of the reasons behind the price rise were 
"market fears" and "speculation."  He noted that 
some observers had placed a risk premium on the 
price of oil of $10-$15, adding that if these 
concerns could be addressed, prices should drop 
down. 
 
5. (C) Comment:  Dr. Ismail's comments are likely 
to reflect Oil Minister Al-Nassiri's views to 
increase both the production quota and the price 
band.  Even if OPEC agrees to raise the production 
quota, however, the Ministry of Petroleum has no 
say in how much oil the UAE actually produces.  The 
Emirate of Abu Dhabi controls the vast majority of 
UAE oil resources and production capacity, and 
makes its own production decisions.  We currently 
estimate that the UAE is producing at or around its 
maximum sustainable capacity of 2.5-2.6 mb/d. 
(Note: Our production estimates track those of the 
Ministry of Petroleum.)  If Abu Dhabi wanted to 
increase production, it would need to flare gas, 
which violates environmental regulations and Abu 
Dhabi policy.  End Comment. 
Sison