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Saudis Pledge not to Shock Oil Market as OPEC Debates Policy

Source: Reuters 6/2/2016, Location: Middle East

Saudi Arabia promised not to flood the oil market with extra barrels as OPEC entered a heated debate about production policy, with Iran insisting on the right to raise output steeply.

Tensions between the Sunni-led kingdom and the Shi'ite Islamic Republic have been the highlights of several previous OPEC meetings, including in December 2015 when the group failed to agree on a formal output target for the first time in years.

Several OPEC sources said Saudi Arabia and its Gulf allies would propose to set a new collective ceiling in an attempt to repair OPEC's waning importance and end a market-share battle that has sapped prices and cut investment.

Failure to reach any deal would revive market fears that OPEC's largest producer Saudi Arabia, already pumping near record highs, may raise production further to punish rivals and gain additional market share.

"We will be very gentle in our approach and make sure we don't shock the market in any way," new Saudi Energy Minister Khalid al-Falih told reporters ahead of the meeting.

"There is no reason to expect that Saudi Arabia is going to go on a flooding campaign," Falih said when asked whether Saudi Arabia could add more barrels to the market.

Answering a question on whether Riyadh would propose setting a collective output ceiling, he said: "We will do that when necessary?." He added that he would listen to anything Iran brings to the table.

Any agreement between Riyadh and Tehran would be seen as a big surprise by the market, which in the past two years has grown increasingly used to clashes between the political foes as they fight proxy wars in Syria and Yemen.

Saudi Arabia effectively scuppered plans for a global production freeze - aimed at stabilising oil markets - in April. It said then that it would join the deal, which would also have involved non-OPEC Russia, only if Iran agreed to freeze output.

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