DUBAI/LONDON--Old disputes between Saudi Arabia and rival Iran resurfaced at a meeting of OPEC experts last week, with Riyadh saying it could raise oil output steeply to bring prices down if Tehran refuses to limit its supply, OPEC sources say.
Clashes between the two OPEC heavyweights, which are fighting proxy wars in Syria and Yemen, have become frequent in recent years. Tensions subsided, however, in recent months after Saudi Arabia agreed to support a global oil supply limiting pact, thus raising the prospect that OPEC would take steps to boost oil prices.
But a meeting of OPEC experts last week, designed to work out details of cuts for the next OPEC ministerial gathering on Nov. 30, saw Saudis and Iranian clashing again, according to five OPEC sources who were present at the meeting and spoke to Reuters on condition of anonymity. "The Saudis have threatened to raise their production to 11 million barrels per day and even 12 million bpd, bringing oil prices down, and to withdraw from the meeting," one OPEC source who attended the meeting told Reuters.
OPEC headquarters declined to comment on discussions during the closed-door meetings last week. Saudi and Iranian OPEC delegates also declined official comments.
A senior Gulf OPEC source said Saudi Arabia did not say output will rise, rather that it "could" rise. "Saudi doesn't threat, Saudi Arabia doesn't produce more than the customers need," the source said. "All oil producers could raise their production if there was no agreement, this is a fact."
Saudi Arabia has increased output since 2014 to record highs of around 10.5 million-10.7 million barrels per day and adding extra supply would only worsen the global glut, which has already seen prices more than halving from $115 a barrel since mid-2014.
The Saudi stance followed objections by Iran, which said it was unwilling to freeze its output, the same OPEC sources said. Iran has argued it should be exempt from such limits as its production recovers after the lifting of EU sanctions.
Riyadh's position will revive memories of a pump war that it embarked on at the end of 2014 to claw market share back from higher-cost producers. Iran along with other OPEC price hawks have severely criticised the Saudi strategy. Riyadh has softened its stance since the appointment of Khalid al-Falih as energy minister in May this year.
In September, OPEC agreed at a meeting in Algeria on modest preliminary oil output cuts in the first such deal since 2008, with special conditions given to Libya, Nigeria and Iran, whose output has been hit by wars and sanctions. A new rise in tensions observed during the meeting of experts last week highlights the fragile nature of OPEC agreements. The group has a long way to go before it turns its preliminary Algerian accord into a real deal.
The Saudi comments on raising output came as a surprise even to Riyadh's Gulf OPEC allies, sources who attended the meeting of experts on Oct. 28 said. One source said the Saudi OPEC delegation has asked to call off the next day's meeting with non-OPEC producers, including Russia, on Oct. 29 since Iran was objecting to a deal. But they were convinced by other members to attend it in order not to embarrass the group.
"We felt as if they (the Saudis) wanted the meeting to fail," said a third, non-Iranian OPEC source.
The Saudi OPEC delegation told their Iranian counterparts that Tehran should freeze output at 3.66 million bpd - the latest estimates of Iranian output by OPEC experts, known as secondary sources. Iran has reported its output at 3.85 million bpd in September and said it would only cap its output at 12.7 percent of OPEC's total ceiling - or 4.2 million bpd.
Iran's counter-argument at the meeting was that Saudi Arabia has raised its output by almost 1 million bpd since 2014, and is now trying to convince others it would cut output by 400,000 bpd to get a deal, though in reality Riyadh has already won extra production and revenue, according to OPEC sources.
