Opec deal still elusive despite Saudi offer

Kingdom pumped a record 10.7m barrels a day last month

Opec members aren’t likely to reach a supply deal in Algiers this 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 with other major producers 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 The months leading up to the official Opec ministerial meeting in Vienna on November 30, will allow more time for discussions with other countries, said the person familiar with Saudi policy. The kingdom, the world’s largest crude exporter, wants to see higher prices to encourage essential investment in the energy industry, the person said. The IEA warned this month that oil and gas companies could be on track to cut spending for a third straight year. the prospects that Opec and Russia will cooperate to curb a global supply glut this 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 and they could leave before the informal talks scheduled for Sept. 28, 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, head of commodities research at Citigroup Inc. in New York.

Saudi Arabia said it would be willing to reduce its output if Iran were to cap production at the current level of about 3.6 million, 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 barrels a day last month, an increase of 490,000 barrels a day from January, according to data.

Signal

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 $50 a barrel — less than half the level of 2014 — and the International Energy Agency is predicting the surplus could persist for a fourth year into late 2017.

The last attempt at a deal between Opec and Russia collapsed in Doha on April 17 when Saudi Arabia’s influential Deputy Crown Prince Mohammed bin Salman insisted at the last minute that Iran had to participate in a freeze. Iran refused as it was just starting to revive exports following the end of international sanctions.

Now that Iran has returned to pre-sanctions production capacity, “the odds are in favour” of some basic agreement, said Helima Croft, chief commodities strategist at RBC Capital Markets LLC in New York.

Iran produced 3.62 million barrels a day on average in August, an increase of 820,000 since sanctions were lifted at the start of the year, according to data. The nation has repeatedly said it’s entitled to recover its previous output level of about 4 million barrels a day.