OPEC members Saudi Arabia and Iran, whose rivalry derailed an oil supply accord earlier this year, met in Vienna a week before the organization holds talks in Algeria.
The two oil producers, along with fellow OPEC member Qatar, met at the headquarters of the Organization of Petroleum Exporting Countries in Vienna, according to three people familiar with the matter. They were making preparations for informal discussions between energy ministers from OPEC and Russia in Algiers next week, the people said, asking not to be identified because the talks were private.
The face-to-face talks between Saudi Arabia and Iran, OPEC’s two leading members and fierce regional rivals, show diplomatic efforts to secure a meaningful deal in Algiers are still under way despite market skepticism. Prices have retreated this month amid concern there will be no serious commitment to constrain supply and all but two of 23 analysts surveyed by Bloomberg this week predict there will be no agreement next week.
“We may be starting see a change of attitude in Riyadh,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “A positive result to the talks in Algiers is looking more likely.”
OPEC’s last attempt to reach a deal, which also involved Russia, the largest non-OPEC producer, fell apart in Doha in mid-April when Saudi Arabia insisted at the last minute that Iran also had to freeze production. Iran had refused because it was just starting to revive exports following the end of international sanctions.
The discussions on Wednesday in Vienna marked the latest step in a flurry of shuttle diplomacy that has seen OPEC officials meet from Paris to Moscow and the Middle East. OPEC Secretary-General Mohammed Barkindo visited Qatar and Iran earlier this month to build consensus before the Algiers conference. President Vladimir Putin said on Sept. 2 that the producers can overcome their divisions to reach a deal.
With Iran having restored lost output since international sanctions were lifted in January, the chances of a deal now are higher than at any time since OPEC launched its strategy two years ago, according to Jamie Webster, a fellow at the Center on Global Energy Policy at Columbia University in New York.
The growing pressure from low oil prices may also give Saudi Arabia, which has depleted its cash reserves to cover a budget deficit, an incentive to compromise, according to Abhishek Deshpande, chief energy analyst at Natixis SA in London. Still, a number of obstacles to securing an agreement remain, including tensions between Saudi Arabia and Iran as they continue to clash in proxy conflicts around the region from Syria to Yemen.
OPEC also remains locked in a contest for market share, both between members and with competitors outside the group like U.S. shale drillers, making a deal difficult. Some OPEC members such as Iran and Iraq aim to boost capacity, while de facto group leader Saudi Arabia is pumping at record levels to maintain its sales volumes.
The group is also reluctant to enter into a pact with Russia, which it doubts would deliver on any pledge to curb supply, according to Citigroup Inc.