Oil prices jump as Saudi tries to corner Iran on output

Oil prices jumped on Friday after sources told Reuters Saudi Arabia could reduce its crude production should regional foe Iran cap its own output this year.

The Saudi offer, ahead of next week’s OPEC meeting to try to staunch oil price losses, has yet to be accepted by Tehran, three sources familiar with the discussions told Reuters.

Brent crude oil and US West Texas Intermediate futures, trading classifications that are important benchmarks for oil prices, turned positive immediately after the news, with the European benchmark jumping more than one per cent.

Oil futures started the day in negative territory as investors held little hope of a breakthrough to prop up prices at talks held by members of OPEC in Algeria next week. Both Saudi Arabia and Iran are OPEC members.

The Saudi offer revives the notion, as signalled by Riyadh and Tehran earlier in the year, that they could coordinate to support the market. Both nations have suffered from economic turbulence relating to their energy sector.

If agreed, such a deal would shift Saudi Arabia’s strategy of defending its share of the global market, despite falling prices, at the expense of other producing countries, especially those where oil production is more expensive.

However, market observers say a deal to freeze crude output across 14 OPEC members spanning Asia, the Middle East and the Americas is still unlikely. Nevertheless, some sort of cooperation among exporters should prevent production from ballooning further.

ANZ bank said: “Discussions between Saudi Arabia and Iran this week suggest they are keen to get something done … which raises the possibility of a sharp reaction to the upside in prices if an agreement is reached.”

OPEC members will meet between 26-28 September on the sidelines of the International Energy Forum, which groups producers and consumers. Non-OPEC producer Russia is also attending the forum.