OPEC deal elusive even after Saudis offer to cut production

OPEC members aren’t likely to reach a supply deal in Algiers next week, but an agreement to boost prices could be drawing closer after Saudi Arabia signalled for the first time in two years that it’s willing to cut production.

Saudi Arabia and Iran, whose rivalry thwarted a deal in April, didn’t reach agreement after two days of preparatory talks in Vienna, including the Saudi offer to pump less if Iran caps output at current levels, according to two people familiar with the negotiations. While the kingdom doesn’t now anticipate any formal decision on supply will be taken in the Algerian capital, talks will continue and OPEC meets again in two months, said a delegate familiar with its policy.

The impasse between the Middle East neighbours dims prospects that OPEC and Russia will co-operate to curb a global supply glut next week — already seen as unlikely by market watchers. The delegation from Moscow only intends to join discussions after OPEC members reach a supply agreement between themselves, three people familiar with the matter said.

“It’s difficult to come to the conclusion that a freeze would be credible or doable,” said Ed Morse at Citigroup Inc. in New York.

Saudi Arabia said it would be willing to reduce output if Iran were to cap production at the current level of about 3.6 million barrels per day, according to two people familiar with the matter.

The kingdom often does curb production at this time of year, as the surge in demand for air conditioning in the hot summer months begins to fade. The kingdom pumped a record 10.7 million bpd last month, an increase of 490,000 bpd from January, according to data compiled by Bloomberg.

The Saudis’ offer to Iran does signal that the kingdom is seeking some kind of deal to reduce the global oil glut after two years of leading OPEC’s strategy of unfettered production to squeeze out high-cost rivals. Oil prices remain below US$50 a barrel — less than half the level of 2014.

Iran has repeatedly said it’s entitled to recover its previous, pre- sanctions output level of about four million barrels a day.

Other OPEC members may also be reluctant to freeze at current levels. Iraq will seek to defend a production level of 4.75 million to five million barrels a day, Oil Minister Jabbar Al-Luaibi said by email Thursday.