OPEC deadlocked as Iran, Saudis harden positions on oil deal

By Nayla Razzouk, Elena Mazneva, Angelina Rascouet on 11/29/2016

VIENNA (Bloomberg) -- An OPEC deal to curtail oil production appeared in jeopardy as Iran said it won’t make cuts while Saudi Arabia insisted Tehran must be willing to play a meaningful role in any agreement.

Ministers gathering in Vienna before Wednesday’s crucial OPEC meeting attempted to resolve differences obstructing an accord. Iranian Oil Minister Bijan Namdar Zanganeh laid out his country’s position following talks with his Algerian and Venezuelan counterparts. Under an Algerian proposal Tuesday, the 14 members of OPEC would cut production to 32.5 MMbopd from their October level of 33.6 MMbopd, according to two delegates familiar with the talks.

With little time left before the Organization of Petroleum Exporting Countries meets to finalize the first production curbs in eight years, resistance from Iran—and from neighboring Iraq—has made the foundations for a deal look increasingly shaky. Top producer Saudi Arabia is ready to reject an accord unless all members, bar Libya and Nigeria, participate, people with knowledge of the kingdom’s position said earlier.

“I don’t know” if there will be an agreement, Indonesian Energy Minister Ignasius Jonan told reporters in Vienna. “The feeling today is mixed."

Under the Algerian proposal, Angola, which had a key oil field under maintenance in October, will cut from its September level. Nigeria and Libya will be exempted from cuts. Still, OPEC will consider their output to calculate the overall target, using their year-to-date averages, rather than their October levels.

An OPEC proposal initially agreed in Algiers in September would see producers trim output by about 1.2 MMbopd from October levels. Iran has sought special treatment since it’s ramping up output following years of crippling sanctions.

Iran has suggested it freezes production at 3.975 MMbopd, or about 200,000 bopd above current output, two OPEC delegates said Monday. Saudi Arabia countered with a proposal for Iran to cap output at 3.707 MMbopd. Algeria, acting as a go-between, offered an alternative that would see Iran freeze at 3.795 million, the delegates said.

Crude prices remain at half their level of mid-2014 as global supply continues to swamp demand. Brent fell 3.9% to settle at $46.38/bbl in London on Tuesday.

Fighting for Barrels

At negotiations in Vienna, countries have fought to the very last barrel.

While Iraq finally appeared to accept that OPEC supply estimates known as “secondary sources” should determine the basis for cuts, it was still insisting it should be allowed to freeze at October’s output of 4.6 MMbopd, according to one delegate. That’s roughly the same level as would be reached if the proposal for a group-wide cut of 4% to 5% were applied to Iraq’s own output estimate of 4.8 MMbopd.

Algeria proposed Iraq cut production by 240,000 bopd from the October secondary-sources level, two delegates said.

Saudi Arabia won’t insist that Iraq and Iran make the same size reduction as other OPEC members and hasn’t decided from which production level they’ll be asked to cut, according to the people familiar with the situation.

Special Treatment

Iraq had previously demanded an exemption from a supply deal, citing the urgency of its offensive against Islamic State.

“We support Iran in the sense that they’ve had sanctions and we have to take that into account in the deal that we make,” Ecuador’s Minister for Foreign Affairs Guillaume Long told reporters in Vienna on Tuesday. “The same goes for Iraq as well. We know Iraq has a very expensive security situation that it faces, basically a war. We understand that requires special treatment.”

Informal discussions between the heads of OPEC delegations will take place at about 8 a.m. on Wednesday, preceding the formal meeting at the Secretariat at 11 a.m., said two delegates, asking not to be identified because information isn’t public.

No Deal?

On Sunday, Saudi Oil Minister Khalid Al-Falih for the first time floated the possibility of leaving Vienna without an agreement. It was unclear whether the minister changed his mind about the deal’s merits, or was trying to boost his negotiating position with Iran and Iraq.

As OPEC tries to resolve its own differences, the group is also asking other big producers including Russia to reduce output by as much as 600,000 bopd. The Kremlin so far has resisted requests that it join the cut, offering instead to freeze production at current levels.

Energy Minister Alexander Novak said Tuesday that he has no plans to visit Vienna on Wednesday, but that Russia is ready to talk if the group reaches an internal consensus.

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