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Saudi Arabia is ready to reduce its crude oil output if Iran agrees to freeze its own at current levels, anonymous sources have told Reuters. The news comes days before Tuesday’s meeting of OPEC and Russia where the parties will discuss measures aimed at rebalancing the market.
Saudi Arabia currently produces a bit above 10.6 million barrels of crude daily. It increased its production in June, in line with the seasonal peak in demand, but before that, between January and May, the kingdom pumped an average of 10.2 million barrels daily.
Iran, on the other hand, has taken the task of raising its output as quickly as possible to heart, hitting 3.6 million barrels this month. Tehran has already made it clear that it will only stop increasing its output if the Saudis agree to cut theirs, with the argument that such a move on Iran’s part would be meaningless, if “other countries” continued pumping crude at record levels.
Saudi and Iranian officials met earlier this week at OPEC’s headquarters in Vienna to discuss privately steps they could take to reach an agreement on rebalancing the oil market. The meeting did not yield an agreement, according to sources cited by Bloomberg, but, apparently, it has borne some fruit, judging by Saudi Arabia’s latest move.
Iran has insisted that it wants “fair prices” for its crude, and has acknowledged that the current price level is not really a level it’s happy with. However, its rivalry with Saudi Arabia is notorious, which has left a huge question mark hanging over any possibility of a productive agreement.
In this context, the news about readiness on the part of the Saudis to reduce their production can be interpreted as a major concession. After all, it was Saudi Arabia that first started applying the strategy of producing more and more oil to protect its market share in the face of fast-growing competition from U.S. shale boomers. The kingdom’s close allies from the Gulf – the UAE, Kuwait, and Qatar – are expected to join the agreement, should Tehran say yes to Riyadh’s offer.
By Irina Slav for Oilprice.com
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Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.