OPEC Weighs Million-Barrel Output Cut
 
OPEC plans to discuss Wednesday a proposal that would cut almost one million barrels a day of the cartel's production over one year, said people involved in the discussions, setting up a showdown between Saudi Arabia and Iran in Algiers.
Under the proposal, Saudi Arabia would carry out the
bulk of the reduction, cutting 400,000 barrels a day from records of almost 10.6 million barrels a day in August, the
people said. In return, Iran would have to agree to freeze output at 3.7 million barrels a day—slightly above its August levels, the people said.
The plan isn't expected to be agreed to on Wednesday
when the Organization of the Petroleum Exporting Countries plans an informal gathering on the sidelines of an energy conference in Algiers. The scenario is mea'nt to start discussions that could pave the way for an agreement when the producer group meets again in November, the people said.
The proposal, if eventually agreed to, would represent the 14-nation cartel's first concrete action to prop up the market since oil prices crashed beginning in 2014. It would also represent a departure for Saudi Arabia, which has opened the spigots wide during the market slump in a fierce competition for customers with US. oil producers and others.
The people said the proposal could be discussed as soon as Tuesday afternoon between Saudi Arabia and Iran, two bitter rivals for power in the Middle East whose disagreements have scuttled other
OPEC attempts at reaching a production deal.
Iran's reaction to the Saudi-backed plan isn't yet clear, but the proposal wouldn't allow Iran to carry out plans to increase its production to more than four million barrels a day.
Before news of the proposal emerged Tuesday, Iranian Oil Minister Bijan Zanganeh said that this week's meeting in Algiers was only for consultations and that his country had no plans to limit its oil production. Iran is trying to ramp its production back up now that Western sanctions that crippled its oil industry have ended.
The proposal comes as OPEC tries to find a consensus this week on how to react to oil prices that have stayed stubbornly low for two years.
OPEC Secretary-General Mohammad Barkindo said Wednesday's informal gathering could be turned into an emergency formal meeting if the cartel finds consensus. Mr. Zanganeh, however, said this week represented consultations that pave the way for a
deal at the group's next meeting on Nov. 30 in Vienna.
Saudi Arabia's energy minister. Khalid al-Falih on Tuesday called this week's.OPEC meeting "consultative" and suggested it could take months for the oil-producing cartel to find consensus.
The market recovery is slower than we thought. But we remain optimistic," said Mr. Falih, who oversees Saudi oil policy and is among the most influential voices in the energy industry.
OPEC members appear deeply divided. In talks last week in Vienna, Saudi and Iranian officials couldn't agree on basic details of a production deaL Similar efforts were scuttled in April after Saudi Arabia backed out because Iran wouldn't participate.
"In the room where the Saudis and Iranians meet, there will always be burning-hot political tensions," said one of the people familiar with the plan.
This time, there is more pressure to reach an agreement, and Mr. Barkindo told reporters that OPEC has made progress since the breakdown of talks in ApriL Iran is closer to clawing back the share of the oil market it says it enjoyed before Western sanctions crippled its petroleum industry, and Saudi Arabia has been pumping oil at record highs, helping send prices lower.
The proposal to be discussed Wednesday is intended to be a dramatic action, the people said. If enacted, the people said the plan would take enough production off the market that oil buyers would begin drawing down the record levels of oil inventories that built up when supplies were abundant and cheap.
Without providing details about the proposal, Mr. Barkindo told reporters that more than 340 million barrels of production   must   be   taken
from the market to bring stockpiles of stored crude to acceptable levels. Under the proposal, OPEC would cut about 350 million barrels from the market over one year.
Mr. Falih said Tuesday that the oil market now is "trending in the right direction." He said crude oil, which has been stockpiled in record amounts over the past two years, is being drawn out of inventories in the U.S. He said global supply and demand were beginning to converge.
"I am quite confident about the fundamentals," Mr. Falih said.
He said higher oil prices
would be needed soon to make
investments in new oil projects
to satisfy, demand.
—Georgi Kantchev in Algiers
contributed to this article.