OPEC debates oil cuts amid deep disagreement

Oil markets edged up in nervous trading on Wednesday ahead of an OPEC meeting later in the day, with members of the producer cartel trying to thrash out an output cut to curb oversupply that has seen prices more than halve since 2014.

An agreement appeared distant as late as the eve of the cartel’s meeting due to a rivalry between Saudi Arabia, OPEC’s top producer, and Iran, whose struggle for dominance in the Mideast is also playing out in the Organization of the Petroleum Exporting Countries. Iranian Oil Minister Bijan Namdar Zanganeh laid out his country’s position following talks with his Algerian and Venezuelan counterparts. Iran has sought special treatment since it’s ramping up output following years of sanctions.

Prices rose after Zanganeh said today morning in Vienna that he believed OPEC would reach a production deal, though he said an immediate freeze of his country’s output wasn’t on the agenda, the Wall Street Journal reported.

Brent futures fell $1.86, or 3.9 percent, to settle at $46.38 a barrel, while USA crude lost $1.85, or 3.9 percent, to $45.23. Saudi Arabia stated they are willing to walk away from a deal if Iran does not participate.

Earlier in the session, Russian Federation said it would not be attending talks between Opec and non-Opec producers.

“Kicking the can to the next OPEC meeting in half a year’s time”, he said.

Expectations of a significant production cut have largely disappeared at this stage, owing to entrenched differences between Saudi Arabia and Iran, but analysts still agree that some form of compromise on output could be agreed in the Austrian capital.

In addition, on Monday Russia President Vladimir Putin and his Iranian counterpart acknowledged the importance of finalizing an OPEC output cut deal in order to stabilize the global oil market.

“It will mean that we (Saudi) take a big cut and a big hit from our current production and from our forecast for 2017”.

OPEC member Iraq has also been pressing for higher output limits, saying it needs more money to fight the militant group Islamic State, but Del Pino said Iraq would contribute to cuts.

Saudi Arabia Energy Minister Khalid Al-Falih said dividing the output cuts between members remains a “sticking point”. With demand being unable to keep up with supply, crude oil prices took a dive.

These reports of Iran’s latest position on OPEC actions sent oil prices plummeting down almost 4% with Brent hovering at the $46 per barrel level and WTI at $45. Still, Opec will consider their output to calculate the overall 32.5 million-barrel target, using their year-to-date averages, rather than their October levels. But given the amount of political capital invested, if they do not have a deal, oil prices will nearly certainly plummet.

The price fall has also exacerbated an already desperate situation in Venezuela, where Human Rights Watch says food and medicine shortages are so bad that there is a “profound humanitarian crisis“.

Iran, Opec’s third-biggest producer, proposed that it freeze production at 3.975 million barrels a day, according to two delegates with knowledge of the talks.

They made no comment as they emerged from their meeting.