(Benoit Faucon, Sarah Kent, Summer Said)
Tensions are emerging within the Organization of the Petroleum Exporting Countries over which member countries should trim oil production to make room for a resurgence in Iraqi exports and the possible return of more Iranian crude to world markets if sanctions are eased.
There is no expectation of a decision to cut back at the OPEC cartel's meeting in Vienna on Wednesday. The group of 12 of the world's largest producers, though long riven by squabbling, has kept its overall production ceiling at 30 million barrels a day since December 2011.
OPEC expects overall demand for its crude to drop by about 300,000 barrels a day next year and some members are pushing to trim output, according to people familiar with the debate.
Members will have to decide whether to cut production as early as the first half of the year, with the risk that short-term global supply might build to a level where prices fall, an OPEC official said.
OPEC holds outsize sway in global oil markets, producing more than one out of every three barrels burned in the world. But its ability to move prices significantly has been hindered recently by a surge in non-OPEC crude, including a boom in U.S. production of shale oil.
Iraq is also making strides in dramatically boosting its output after it was hobbled by Saddam Hussein-era sanctions and then the fallout of the U.S.-led invasion of the country. The country is on track to produce some three million barrels a day on average this year, its highest sustained level in at least 20 years.
Iran's interim nuclear deal with the West a week ago has added new uncertainty over whether that country will eventually be allowed to ramp up its own output to global markets.
Iran agreed to curtail activities that the West suspects are aimed at making nuclear weapons in exchange for some limited relief from international sanctions that have cut its critical oil exports by some 1.5 million barrels a day to 715,000 barrels a day now.
The deal doesn't allow for new Iranian oil exports, but promises to temporarily halt new restrictions on those exports over the next six months.
Iran is currently producing a bit below its sanctions limit.
But because the deal allows previously banned insurance on Iranian oil shipments, it could result in the addition of a few hundred thousand barrels of Iranian oil a day to markets.
The prospect of Iraq and Iran boosting their output in the coming year is putting additional pressure on OPEC members to shave overall production to bolster prices.
Iran is pushing publicly for Iraq to throttle back, accusing Baghdad of stealing its customers while it was under sanctions. "Iraq has behaved inappropriately in dealing with customers of Iranian oil," Mansour Moazami, an Iranian deputy oil minister, said in an interview with the ministry's website.
Some expect Iran to seek a debate on whether certain cartel members should rein in production if Iranian barrels start to return to world markets.
"If Iran increases its production, OPEC may have to look at who should cut, and most likely that would be the Gulf," an OPEC official said.
Gulf OPEC officials, however, are split on who should rein in output, according to people familiar with the debate. Saudi Arabia, Kuwait and the United Arab Emirates, who together account for more than half of the cartel's output, are possible candidates.
Some say they should do it themselves next year in an effort to support prices, while others say Iraq should be asked to rein in its output, those involved in the debate say.
"The closer Iraq gets to a four million barrels [a day] mark, the more it is important for us to find a way to put a limit on their output," said one Gulf delegate.
Iraq has shown little willingness to back down. "I don't think we can take orders from anybody [related to] the future of Iraq—especially Saudi Arabia and Iran," Adnan Al Janabi, chairman of the Iraqi parliament's oil and gas committee, said at an energy conference in Istanbul in November.
Earlier this year, surging production by the U.S. divided cartel members over what to do in response to all the new supply from outside OPEC's ranks.
They agreed only to study the issue at the group's last meeting in May.
The U.S. is on track to overtake Saudi Arabia as the world's biggest oil producer by 2015, according to the International Energy Agency.
The prospect of this growing U.S. supply is another reason the return of Iranian oil or an increase in Iraqi output could prove so contentious.