IRANIAN - IRAQI REDUCTION
WSJ wrote, Iran and Iraq emerged as major stumbling blocks to an OPEC agreement on reducing crude-oil output, as cartel members gathered ahead of their official meeting to tackle the thorny puzzle of how to share the pain of reducing their production.
Officials of the Organization of the Petroleum Exporting Countries who met for midlevel talks aimed at nailing down terms ahead of a formal Nov. 30 meeting made progress by outlining cuts of as much as 4.5% for most countries, and by providing specific targets to each country, people familiar with the matter said.
Oil prices rallied early Tuesday on optimism based on reports about the talks' progress. The cut of 4.5% would reduce OPEC's output faster than the group envisioned in September when its members agreed in principle to production cuts.
But Iran and Iraq—the cartel's second- and third-largest producers—then told other members they were reluctant to go along with a cut of that size, according to people familiar with the matter.
News of the two countries' hesitance sent oil skittering down. In the late afternoon in London, Brent crude, the international benchmark, was down 0.82% at $48.50, after rallying to reach $50 a barrel earlier in the day.
"Everybody knows that the stakes are high," said Ibrahim Waya, a member of Nigeria's delegation to OPEC. He predicted that the cartel's members eventually "will be on board" with production cuts.
Iraqi and Iranian officials couldn't be reached for immediate comment, but Iraq's oil minister, Jabar al-Luaibi, said Sunday he would come up with proposals to resolve the differences. However, a Reuters report Tuesday quoted Iraq's foreign minister, Ibrahim al-Jaffari, as saying Baghdad still wanted to increase production.
For OPEC, the buildup to the Nov. 30 meeting has put a greater importance on reaching some kind of deal, a move that would reclaim the group's traditional role of managing oil supply to influence prices. Almost two years ago, the group made the historic decision—on Thanksgiving Day—to let prices fall amid a global supply glut without taking action; they have been pumping at record levels since.
"If they don't do a deal and depending on precisely why the deal failed, we expect prices to have another look at $40," said Paul Horsnell, head of commodities research at Standard Chartered PLC.
Finding a formula for how production cuts would be apportioned among members has long been the biggest barrier to a deal.
That Iran is even being asked to cut appeared to be a departure from a September agreement in Algiers, where Saudi Arabia signaled its longtime rival would be exempted, effectively paving the way for the group to reach a rough consensus on cutting that it said it aimed to translate into actual cuts at its November meeting.
Iraq has said it needs oil revenue to prosecute a war against Islamic State, and Iran wants to regain the market share it lost during a period of international sanctions over its nuclear program.
Both countries say they don't want to use the production figures proposed by OPEC.
Despite the remaining challenging, discussion of the detailed proposals does mark progress, said Chris Kettenmann, chief energy strategist at U.S. broker Macro Risk Advisors. "It gives them a fulcrum to negotiate around," he said.
OPEC proposed 4.5% production for Iran would be based on its July 2005 output level of 3.97 million barrels a day, according to a person familiar with the matter. The mid-2005 level was Iran's highest since the 1979 Islamic Revolution, and represented its oil-industry's high-water mark before political isolation and sanctions ushered an era of decline.
OPEC officials said there was broad agreement for a six-month deal, not a year as previously discussed, officials said Tuesday. Mr. Waya said the six-month output curb being discussed would be monitored by a technical committee and would start on Jan. 1.
The deal would exempt two members—Nigeria and Libya—from the obligation to slash output. Both countries are looking to increase output after severe disruptions.
For Saudi Arabia, a 4.5% output cut would be as much as 476,000 barrels a day, based on its October production of 10.53 million barrels a day. That would still allow the kingdom to pump at historically high levels. Its average production in 2014, for instance, was 9.7 million barrels a day, according to OPEC.
OPEC members like Saudi Arabia and Iran have said they want prices to return to a range of $55 to $60 a barrel, far below 2014 levels of more than $100 a barrel, but enough to stop the bleeding in their petroleum-reliant national budgets.
The $55 to $60 price is seen as high enough to spur needed new investment in the U.S. and international oil industries, without sparking a flood of new output from American shale-oil producers. OPEC has struggled to regain its footing after American output surged in the past decade, thanks to hydraulic fracturing techniques.
Even if OPEC does find a way to cut, it may still find itself outmaneuvered by U.S. producers, who have been waiting to ramp up output again when prices rise. A significant boost in U.S. output could sink any price rally.
"I'm of the opinion that the cut is a big mistake," said Bjarne Schieldrop, the chief commodities analyst at SEB Markets.
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