COMMODITIES
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Commodities

OPEC deadlocked as Iran and Saudis harden positions

PUBLISHED : Wednesday, 30 November, 2016, 12:37am
UPDATED : Wednesday, 30 November, 2016, 12:37am

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 are attempting 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. Benchmark Brent crude dropped as much as 4.4 per cent in London.

With little time left before the Organization of Petroleum Exporting Countries meets to finalise the first production curbs in eight years, resistance from Iran -- and from neighbouring 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.“

Saudis sink Russia oil talks as OPEC deal hangs in the balance

An OPEC proposal initially agreed in Algiers in September would see producers trim output by about 1.2 million barrels a day 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 million barrels a day, or about 200,000 barrels a day above current output, two OPEC delegates said Monday. Saudi Arabia countered with a proposal for Iran to cap output at 3.707 million. 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 traded at US$46.48 a barrel, down 3.7 per cent, in London on Tuesday.

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

While Iraq finally appeared to accept the OPEC supply estimates known as “secondary sources” that would determine the basis for cuts, it was still insisting it should be allowed to freeze at the October level of 4.6 million barrels a day, according to one delegate. When applied to Iraq’s own output estimate of 4.8 million barrels a day, the proposal for OPEC members to make an average cut of 4 to 5 per cent would take production to roughly the same level.

Algeria proposed Iraq cut production by 240,000 barrels a day 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.

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

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 barrels a day. 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.