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Sources Say if Iran Freezes Output, Saudis Offer Oil Cut for OPEC

Sources Say if Iran Freezes Output, Saudis Offer Oil Cut for OPEC
In a major compromise ahead of talks in Algeria next week, three sources familiar with the discussions told Reuters that Saudi Arabia has offered to reduce oil production if rival Iran agrees to cap its own output this year.
The sources reportedly told Reuters on condition of anonymity that the offer was made this month and it is yet to be accepted or rejected by Tehran.
In exchange for Iran freezing production at the current level, which is 3.6 million barrels per day, the sources said that Riyadh is ready to cut output to levels seen early this year.
"They (the Saudis) are ready for a cut but Iran has to agree to freeze," one source said.
Two more sources confirmed the offer was presented to Tehran, reported Reuters.
For Iran, 3.6 million bpd has been the OPEC nation's output for the past three months but the first source did not say by how much Riyadh would cut if Iran agreed to freeze at that level.
Demand for oil in Saudi Arabia reached a record high in July of 10.67 million bpd and edging down to 10.63 million bpd in August, Riyadh's production has spiked since June due to summer demand.
Saudi Arabia produced around 10.2 million bpd from January to May.
If an agreement were reached, Saudi Arabia's Gulf OPEC allies the United Arab Emirates, Qatar and Kuwait were expected to contribute to any reduction, two of sources reportedly said.
Eh sources were also quoted by Reuters saying that the biggest cut would be shouldered by Saudi Arabia which is by far the largest producer in the Organization of the Petroleum Exporting Countries.
In 2014, Riyadh refused to cut output alone to support prices and chose to defend market share against rivals, particularly high-cost producers which set the current OPEC policy ad this new proposal now can be seen as a shift in their strategy and position by Riyadh
A boost in global oil demand and a decline in high-cost supplies such as those from the United States resulted from a fall in oil prices to $30-$50 per barrel from levels as high as $115 seen in June 2014.
But the poorer members of OPEC have faced a budget crisis and unrest even as the Saudi strategy caused a rift in OPEC. After a decade of generous public spending, Riyadh and its Gulf allies also had to tighten their belts.
Riyadh and Tehran signaled they were willing to show more flexibility to prop up prices as the pain of cheap oil grew and pressures on Saudi finances increased.
When Riyadh insisted that Tehran should participate in the first attempt at a global production pact in April essentially collapsed. Until Iran regains market share and boosts output to pre-sanctions levels of around 4 million bpd, the country has said it will not join any such agreement.
The International Energy Forum, which groups producers and consumers, is expected to see OPEC members meeting on the sidelines of the event to be organized in Algeria from Sept. 26-28. Non-OPEC producer Russia is also attending the forum.

Christopher J. Mitchell

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