ALGIERS, Algeria—OPEC producers largely agree that oil prices above $80 a barrel would be too high. But there is widespread disagreement on how the cartel and its allies should contain crude prices once U.S. sanctions banning Iranian oil sales take effect in November.
Members of the Organization of the Petroleum Exporting Countries and a Russia-led alliance are meeting in the Algerian capital on Sunday to debate options for stabilizing prices, which have soared 40% in the past year. At the same time, some OPEC member nations also want to hold to a deal, forged in June, that loosened previously agreed production cuts.
Delegates are weighing whether a production boost may be needed to offset the return of U.S. sanctions on Iranian oil—and whether each OPEC member state should decide individually how to increase output or whether it should happen through a strict quota system.
Algeria supports keeping tight individuals limits, while Saudi Arabia and other Persian Gulf producers are considering relaxing such arrangements.
“If we disband quotas, it will be a mess,” Abdelmoumen Ould Kaddour, chief executive of Algeria’s state-run energy company Sonatrach, told The Wall Street Journal. He warned that ending production allocations could lead to a repeat of the 2014 price crash. For OPEC and its non-OPEC allies, “we need a system where everyone is organized and disciplined.”
The group doesn’t need to make a formal decision until December. But as prices have climbed to $80 a barrel in recent days, the preliminary discussions this weekend have been infused with a sense of urgency. Brent, the global benchmark, ended Friday’s trading at $78.80 a barrel.
“It’s the price of the barrel that must determine the volumes to be produced and not the other way around,” said Mr. Ould Kaddour, who will attend the meeting. This stance signaled by Mr. Ould Kaddour stands in contrast with that of other OPEC producers, who say output decisions are based on supply and demand rather than prices.
“If we don’t stabilize prices at $70 to $80 a barrel, we will have an unmanageable situation…Economies will slow down,” Mr. Ould Kaddour added.
If prices are “over $80 [a barrel], we can consider a slight increase” in OPEC’s production levels, he said, but it was too early to know what could be decided in December as the impact of Iran’s sanctions, instability in Libya and a crisis in Venezuela remained uncertain.
Saudi Arabia, Nigeria and other meeting participants don’t want prices to rise above current levels for fear it might constrain demand or trigger an eventual price crash, according to people familiar with the matter.
In 2014, a decision by OPEC kingpin Saudi Arabia to flood oil markets and refuse to put a floor on prices accelerated a plunge from about $100 to $35 a barrel. Two years later, Algeria, backed by Riyadh, helped reverse that trend by hosting a meeting in which OPEC decided to make its first oil-market intervention in eight years.
Most producers now agree they shouldn’t allow runaway prices, which could lead to higher gasoline and fuel costs for consumers and potentially spark pushback from the U.S.
But some officials want the freedom to act unilaterally without quotas as they fear Iran won’t officially agree to lower its quota. In 2011, Iran blocked a Saudi plan to boost output at a time when Tehran’s supplies were also constrained by sanctions. OPEC then compromised by halting individual allocations and establishing a collective production ceiling.
“The idea in everyone’s mind is to avoid talking about quotas… and avoid drama with Iran,” one senior official participating in the meeting said.