Saudi softens oil stance on Iran, OPEC deal still elusive

ALGIERS / Reuters

OPEC might still agree an oil output-limiting deal later this year as the economic problems of its de-facto leader Saudi Arabia force Riyadh to cede more ground to arch-rival Iran.
Saudi Energy Minister Khalid al-Falih said on Tuesday Iran, Nigeria and Libya would be allowed to produce “at maximum levels that make sense” as part of any output limits which could be set as early as the next OPEC meeting in November.
That represents a strategy shift for Riyadh, which has previously said it would reduce output only if every other OPEC and non-OPEC producer followed suit. Iran has argued it should be exempt from such limits as its production recovers after the lifting of EU sanctions earlier this year.
The Saudi and Iranian economies depend heavily on oil but in a post-sanctions environment, Iran is suffering less pressure from the halving in crude prices since 2014 and its economy could expand by almost 4 percent this year, according to the International Monetary Fund.
Riyadh, on the other hand, faces a second year of budget deficits after a record gap of $98 billion last year, a stagnating economy and is being forced to cut the salaries of government employees. “Does the salary cut indicate the Saudis are ready for a fight or does it indicate that they are ready for a deal,” said an OPEC source from a Middle Eastern producer, when asked about the Saudi shift.
Iranian Oil Minister Bijan Zanganeh said on Wednesday talks about a deal to cap output were ongoing. OPEC will hold an informal meeting at 1400 GMT, following by a formal, regular gathering on Nov. 30.
Oil prices were up around 1.5 percent, with Brent crude nearing $47 per barrel by 1125 GMT. Saudi Arabia is by far the largest OPEC producer with output of more than 10.7 million barrels per day (bpd), on par with Russia and the United States. Together, the three largest global
producers extract a third of the world’s oil. Iran’s production has been stagnant at 3.6 million bpd in the past three months, close to pre-sanctions levels although Tehran says it wants to ramp up output to more than 4 million bpd when foreign investments in its fields kick in.
“Iran is not losing as much as Saudi. They are in a stronger position,” an OPEC source travelling to Algeria this week said when asked about the shifting dynamic within OPEC.
Saudi oil revenue has halved over the past two years, forcing Riyadh to liquidate billions of dollars of overseas assets every month to pay bills and cut domestic fuel and utility subsidies last year.
Iran’s Zanganeh said on Tuesday OPEC would try to reach a deal by November, ruling out a compromise this week to address the glut.
At $45 per barrel, oil prices are well below the budget requirements of most OPEC nations. But attempts to reach an output deal have also been complicated by political rivalry between Iran and Saudi Arabia, which are fighting several proxy-wars in the Middle East, including in Syria and Yemen. OPEC sources have said Saudi Arabia offered to reduce its output from summer peaks of 10.7 million bpd to around 10.2 million if Iran agreed to freeze production at around current levels of 3.6-3.7 million bpd.
For Gary Ross, a veteran OPEC watcher and founder of U.S.-based think tank PIRA, the offer was clearly unacceptable for Iran given that the Saudis have raised production steeply in recent years to compete for market share with U.S. shale production while Iran’s output was limited by sanctions.

Oil trades near $45

AFP

Oil traded near $45 a barrel
after Saudi Arabia signaled it
may compromise with regional rival Iran on a future supply agreement as both countries expect no deal when OPEC members meet Wednesday in Algiers.
Futures rose 1 percent in New York after falling 2.7 percent Tuesday. An accord is possible when OPEC next gathers in November, Saudi Arabian Oil Minister Khalid Al-Falih said at a briefing in the Algerian capital. His Iranian counterpart, Bijan Namdar Zanganeh, said Iran wants time to reach output of about 4 million barrels a day but is “doing all that it can” to get an agreement with fellow OPEC members, according to Oil Ministry news service Shana.
Oil has swung near $45 since last week as traders speculate over whether the Organization of Petroleum Exporting Countries will agree on ways to stabilize the market. While Saudi Arabia has offered to pump less crude if Iran caps output, neither country expects an agreement this week. A production freeze was first proposed in February, but a meeting in April ended with no final accord. OPEC’s next formal summit is on Nov. 30 in Vienna.
“The Saudi-Iranian position is not reconcilable at this time, however Iran is viewing the talks that they’re going to have today as consultative, with perhaps an outcome that would be there to set up the next round,” said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA in London. “In the end, if OPEC is going to come out with a big decision, it just seems incongruous that they would announce this decision at Algiers. It’s not the right venue.”
West Texas Intermediate for November delivery was at $45.11 a barrel on the New York Mercantile Exchange, up 44 cents, at 1:40 p.m. London time. The contract lost $1.26 to $44.67 on Tuesday. Total volume traded Wednesday was about 6 percent above the 100-day average. Prices have averaged about $44.80 this quarter.