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Iran, Iraq won't cut oil production

By Reuters | 2016-11-30 08:11:54.0

Iran and Iraq are resisting pressure from Saudi Arabia to curtail oil production, making it hard for the Organisation of the Petroleum Exporting Countries (OPEC) to reach a global output-limiting deal when it meets today.

Opec sources said a meeting of experts in Vienna on Monday failed to bridge differences between Opec's de facto leader, Saudi Arabia, and the group's second- and third-largest producers over the mechanics of output cuts.

"The revival of Iran's lost share in the oil market is the national will and demand of Iranian people," Iranian news agency Shana quoted the country's oil minister Bijan Zanganeh, who was due to arrive in Vienna later yesterday, as saying.

Opec, which accounts for a third of global oil production, agreed in September to cap output at around 32.5-33.0 million barrels per day (bpd) versus the current 33.64million bpd to prop up oil prices, which have halved since mid-2014.

Iran has argued it wants to raise production to regain market share lost under Western sanctions, when its political archrival Saudi Arabia increased output.

In recent weeks, Riyadh offered to cut its own output by 0.5million bpd, and suggested Iran limit production at below 4million bpd. Tehran has sent mixed signals including that it wanted to produce 4.2million bpd. Iraq has also been pressing for higher output limits, saying it needs more money to fight the militant group Islamic State.

The argument between Iraq and Saudi Arabia mainly focuses on whether Baghdad should use its own output estimates to limit production or rely on lower figures from Opec's experts.

Saudi energy minister Khalid al-Falih said at the weekend that oil markets would re-balance even without an output-limiting pact. He had previously said Riyadh was keen for a deal. Falih was not expected to land in Vienna before yesterday evening, leaving little time for traditional pre-meeting discussions with other ministers.

Some analysts have said oil prices will correct sharply if Opec fails to reach a deal, potentially going as low as $35 (R490) per barrel. Brent crude edged down yesterday to trade near $48.

Goldman Sachs, one of the most active banks in oil trading, said yesterday it saw prices averaging $45 a barrel until mid-2017 even without any Opec deal and added the market was likely to move into a deficit in the second half of 2017.

A year ago, Goldman was saying a global glut would push oil prices to around $20. Prices fell to multi-year lows of $27 per barrel in January 2016. Besides disagreements with Iran and Iraq, Saudi Arabia has also signalled it was unhappy with Russia's position.

Oil ministers from Opec members Algeria and Venezuela were due in Moscow yesterday in a final attempt to persuade non-Opec Russia to take part in cuts instead of merely freezing output.

The Kremlin said Russian president Vladimir Putin spoke to Iranian president Hassan Rouhani and both highlighted "the importance of Opec's efforts to cap production as a key measure to stabilise global oil markets".