Saudi Arabia, Iran and Iraq, Opec’s three most powerful members, were rushing on Tuesday to rescue a supply deal designed to end the longest oil price decline in a generation.
Saudi Arabia, the cartel’s largest producer, and its arch rival Iran have set out their positions ahead of Wednesday’s ministerial meeting in Vienna, with the kingdom hinting it could walk away from a deal if its conditions are not met and Tehran publicly saying it cannot compromise on supplies.
But after 10 hours of closed-door talks, delegates from the 14-member group made progress on Monday. There were signs of greater flexibility between the three big players, which are trying to support prices that have more than halved since mid-2014.
Iran, recovering after years of western sanctions, told Opec members on Monday it would be open to freezing production at just under 4m b/d, two people familiar with the discussions said. It had earlier said it wished to be exempt from any deal in the same manner as conflict-ridden Nigeria and Libya. Bijan Zanganeh, its oil minister, is due to arrive in the Austrian capital on Tuesday.
Saudi Arabia maintained at Monday’s preliminary meeting that Iran should curb output at close to 3.7m b/d, the people said, but privately it has indicated it may allow a higher level near 3.8m b/d, suggesting it may give some ground.
Meanwhile, Iraq, the second-largest producer in Opec, has said it is willing to cap production but only close to Opec’s current assessment of its output, which in October was estimated at 4.5m b/d. It has been pressing for higher limits, saying it needs the money to fight Isis militants.
In early trading in London, Brent crude, the international oil marker, was down 44 cents at $47.80 a barrel. Analysts at Goldman Sachs, one of the most influential banks in commodity markets, said Wednesday’s meeting would go down to the wire, with markets pricing in just a 30 per cent chance of a deal.
“The latest headlines suggest that while there is a broad agreement on the rationale for a cut, political considerations and country-level quota negotiations are so far preventing a deal from being reached. As a result, it will probably take intense negotiations on Wednesday before a decision is made,” said Goldman analyst Damien Courvalin.
Arriving in Vienna on Tuesday, Indonesia’s oil minister Ignasius Jonan told reporters he wanted a “fair deal” at Wednesday’s meeting but was not sure about the “outcome”.
Opec reached an accord in September to bring its total production down to between 32.5m barrels a day and 33m b/d, but two months later the group is still deliberating on how to distribute cuts among its members.
However, tensions between Saudi Arabia and Iran are running high as both sides back different sides in proxy wars from Syria to Yemen.
The Saudi oil minister, Khalid Al Falih, who arrives in Vienna on Tuesday, is pushing for a supply cut large enough to be taken seriously by the oil market, meaning a reduction of more than 1m b/d.
The kingdom believes a significant cut is essential to ensure the co-operation of producers outside of the cartel, primarily Russia — the largest exporter outside the group — according to people familiar with Saudi policymaking.
Saudi Arabia and Russia earlier this year agreed to co-operate to stabilise the oil market, and Riyadh now wants to see Moscow follow through on its pledge by restricting output if Opec reaches a deal.
In a sign of how critical this week’s meeting is for oil prices and big producers’ economies, talks are taking place at the highest level.
Russian president Vladimir Putin on Monday spoke with his Iranian counterpart Hassan Rouhani on Monday, with both sides offering support to output curbs to bring the oil market to balance.
In Saudi Arabia, the deputy crown prince Mohammed bin Salman al-Saud, widely seen as the most powerful person in the kingdom after his father the king, is guiding oil policy and will be in close communication with Mr Falih.
“If there is no deal … all the excitement over higher prices will evaporate,” said Jamie Webster, fellow at Columbia University’s Center on Global Energy Policy.
“The market is looking for a substantive deal that corrects the market or goes some way towards it.”
Additional reporting by Neil Hume
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