Cracks in agreement

TOUGH negotiations await a group of OPEC experts as they meet their counterparts from other oil producers such as Russia on October 28-29 to hammer out details of an output-capping agreement, with disagreements threatening to scupper the deal.

OPEC agreed in Algeria last month on a modest oil-production cut in the first such pact since 2008, with the group’s top producer Saudi Arabia softening its stance on arch-rival Iran amid mounting pressure from low oil prices.

But cracks have surfaced in the Algiers agreement, which would reduce output to a range of 32.5-33 million barrels per day (bpd), and Saudi Arabia may have to offer a major concession if it wants to cement the accord.

Saudi Arabia and its Gulf OPEC allies are already willing to cut 4 per cent from their peak oil output, energy ministers from the Gulf countries told their Russian counterpart this week, sources familiar with the matter told Reuters.

Iraq, OPEC’s No. 2 producer, said this week that it would not cut output and should be exempted from any curbs as it needs funds to fight Islamic State. Baghdad’s stance is likely to face opposition from Riyadh and its Gulf allies, OPEC sources said.

“I expect it to be a very tough meeting,” one OPEC source said of the expert talks in Vienna.

“If there is a cut, then everyone must cut. No exemptions,” the source said, commenting on Iraq’s demands.

There is a general understanding that only Libya, Nigeria and Iran should be exempt as their output had been hit by wars and sanctions, three OPEC sources said.

The Organization of the Petroleum Exporting Countries estimates its output at 33.39 million bpd, meaning it needs to cut about 400,000 to 900,000 bpd to meet its target.

OPEC has yet to agree at which level Iran would freeze production, with Tehran having emerged from years of sanctions and aiming to regain market share.

Iran has said it is producing 3.85 million bpd, close to its pre-sanctions output of 4 million bpd.

A source familiar with Iranian thinking said Tehran was unlikely to match its pre-sanctions output this year.

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