Saudi Arabia gave the strongest indication yet it is ready to compromise with Iran, potentially paving the way for the first limit on oil production in two years.
However, a deal looks unlikely until OPEC’s next meeting in November, as Iran's Oil Minister Bijan Namdar Zanganeh said the country's crude output should reach the pre-sanctions level of around 4 million barrels per day.
Khalid Al-Falih, who inherited a chronically oversupplied oil market when he was appointed Saudi energy minister in April, appeared to show more flexibility toward Tehran, saying that Iran, Libya and Nigeria should be allowed to "produce at the maximum levels that make sense", Bloomberg reported.
"The gap between OPEC countries is narrowing in terms of what are the levels at which we will freeze," Al-Falih said after a long day of bilateral meetings on the sidelines of the 15th International Energy Forum in Algiers in which Russia played the role of mediator between Riyadh and Tehran.
"The opinions are getting very, very close together."
Still, Iran and Saudi Arabia face significant hurdles as both nations have yet to agree on their respective new production targets. As OPEC headed into informal talks in Algiers on Wednesday, they have now two months to resolve differences over production limits if they want to secure an agreement that could prevent another year of oversupply on the oil market.
The two countries started the meeting looking to close a gap of 600,000 barrels a day between their respective positions.
The difference, more than the daily production of fellow OPEC member Ecuador, shows how much work remains before the group can replace the pump-at-will policy adopted in 2014 that upended the oil market, shaking investors, corporations and entire economies.
Riyadh last week asked its regional rival to freeze its output at 3.6 million barrels per day in return for a production cut.
Iran wants to get back its pre-sanctions share of OPEC production of about 13%. The group’s 14 members pumped 33.7 million barrels of crude a day last month, meaning Iran could be targeting output as high as 4.4 million, according to data compiled by Bloomberg.
As OPEC ministers gathered in Algiers, they only agreed that oil prices were not high enough and a production deal was needed. Still, the history of OPEC shows why returning to individual production ceilings is likely to prove arduous, even if most countries signal their desire to reach a deal to end the downturn.
------- Broad Talks
Iran's Oil Minister Bijan Namdar Zanganeh met some key oil officials and executives in Algiers amid a flurry of lobbying of negotiations among OPEC states and non-members on capping crude output to tackle a global glut.
Zanganeh met his Russian counterpart Alexander Novak on Tuesday who has cast doubt on Moscow's willingness to freeze or cut production.
Novak has said that the ball is in OPEC's court, stressing that Russia will consider the freeze plan only after members of the Organization of Petroleum Exporting Countries reach consensus on curbing supplies.
Russia's Finance Minister Anton Siluanov has also said the country's main export blend Urals at $40 a barrel will be used to calculate the country's budget in 2017-19, sending a strong signal that the Kremlin is not interested in higher prices, at least for now.
In a meeting with Algeria's Prime Minister Abdelmalek Sellal and the country's central bank governor, Zanganeh echoed Tehran's supportive stance for restoring stability to the oil market.
"We have always done everything within power to support the oil market and will continue to work toward the interest of all producing nations."
Zanganeh also said on Wednesday that the oil talks in Algiers can lay the groundwork for boosting prices that have more than halved from their peak levels in 2014.
He played down hopes for a freeze accord ahead of the IEF meeting, saying that the informal OPEC gathering ahead of the official summit in November would only be for consultation.
“It’s not our agenda to reach agreement in these two days. We are here for the IEF and to have a consultative informal meeting in OPEC to exchange views. Not more.”
Tehran has persistently called for reinstatement of production quotas in OPEC and Zanganeh has been vocal in criticizing Saudi Arabia, OPEC's de facto leader, for abandoning the group's production ceiling of 30 million barrels per day by pushing output to the limit in the past several months.
“Oil is not a weapon and should not be used as a means of squeezing the rivals or fulfilling political objectives. It’s not our agenda to reach agreement in these two days,” Zanganeh told reporters in Algiers.
Zanganeh also sat down with Patrick Pouyanne, CEO of French oil and gas firm Total, whose company is quickly cementing its place in the Iranian energy sector.
According to reports, Total is interested in developing the coveted South Azadegan Oilfield and also has put forward a proposal to develop Phase 11 of South Pars, the world's largest gas field shared by Iran and Qatar.
