Saudi Arabia Backs OPEC Push to Make Steep Oil Output Cuts

VIENNA—Saudi Arabia is backing an effort to make the steepest oil-production cuts possible at OPEC's meeting next week and to convince producers outside the cartel to help remove almost 2% of the world's oil supply, people familiar with the matter said.

The ambitious plan is encountering reservations from Iran and Iraq, the second- and third-largest producers in the Organization of the Petroleum Exporting Countries, the 14-nation cartel that controls over a third of global oil production. It also ran into an obstacle on Thursday when Russia's energy minister said his country was planning only to hold output steady, not cut.

But the proposal backed by Saudi Arabia, the cartel's biggest and most influential member, has been pushed to the center of talks this week here at OPEC's headquarters as the group discusses ways to shrink production and knock crude prices out of a two-and-a-half year funk. OPEC's 14 national oil ministers are set to meet Wednesday to decide on how to cut production to reduce a global oversupply of oil.

The Saudi-backed proposal would set a production ceiling of 32.5 million barrels a day, the people said. That is more than 1.1 million barrels a day below OPEC's October output and at the top end of a range of cuts the cartel promised in September.

OPEC agreed to reduce its record output to between 32.5 million and 33 million barrels a day in September, but its members have since increased production even more, complicating its calculations for a cut.

According to the people familiar with the matter, OPEC is also pushing for Russia and other oil producers outside OPEC to pitch in by cutting another 500,000 to 600,000 barrels a day of output—the equivalent of the output a country such as Ecuador. All told, the OPEC and non-OPEC cuts would remove about 1.6% of global oil supplies if enacted.

A growing group within the cartel believe only a strong statement from OPEC and big producers outside the cartel will turn market sentiment bullish and lift prices. One OPEC delegate said the cartel's members were discussing cuts of up to 1.3 million barrels a day from October levels.

The proposal has begun picking up steam in discussions in Vienna as the cartel's officials study new data showing the imbalance between oil supply and demand will take longer than they thought to correct itself without intervention. The amount of oil going into storage has been increasing in the U.S. and Japan, not falling as some OPEC members hoped—a trend that keeps the glut going.

OPEC is set to discuss separate cuts with Russia and other countries outside of OPEC on Monday in Vienna. OPEC specifically wants Russia to reduce production by 300,000 barrels a day, from current levels of over 11 million barrels a day, people familiar with the matter said.

Russian energy minister Alexander Novak said Thursday that Moscow was in talks with non-OPEC countries about freezing production at current levels, including Kazakhstan, Uzbekistan and Mexico. He said a production freeze would effectively be a cut of 200,000 to 300,000 barrels a day for Russia—the world's largest producer of crude—because the country is planning to bring on new output soon.

At a gathering in Vienna last month, Brazil told OPEC members that the public listing of its state-oil giant Petrobras limited its flexibility in turning off the spigots, while Mexico said its privatization push could be derailed by such a move, according to an attendee.

The discussions are beginning to pick up speed and intensity as OPEC's oil ministers prepare to travel to Vienna.

OPEC still hasn't agreed to a formula for how to apportion the production cuts. Nigeria and Libya, which have suffered disruptions due to violence and civil unrest, are likely to be exempted. Iran has also said it wants an exemption as it builds back the market share it lost during years of Western sanctions over its nuclear program.

An Iranian oil official said Tehran has yet to agree to join OPEC's output-reduction plan.

Laura Mills in Moscow contributed to this article.

Write to Benoit Faucon at benoit.faucon@wsj.com

(END) Dow Jones Newswires

November 24, 2016 20:45 ET (01:45 GMT)

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