By Rania El Gamal and Alex Lawler
DUBAI/LONDON (Reuters) - OPEC has yet to agree on a long-term strategy as Saudi Arabia objects to a proposal from arch-rival Iran that the exporter group aim for tighter control of the oil market, sources said, pointing to deep divisions over the way forward.
The OPEC board of governors met on Monday in Vienna to discuss the latest draft of its LTS. While they made progress on some issues, OPEC kingpin Riyadh disagreed with Tehran's proposal to include "effective production management" as a challenge for the group, two OPEC sources said.
"Iran and Saudi did not agree," said one source, who declined to be identified.
Iran, according to an earlier draft of the LTS seen by Reuters in November, had proposed that the first of 10 challenges OPEC listed for itself - "sustaining oil market stability" - be tweaked to refer to managing supply.
"The first challenge could be expressed in a more clear way as follows: 'Sustainability of oil prices at optimal levels as well as maintaining effective production management, in light of dynamic market conditions,'" Iran wrote on the earlier draft.
At stake, fundamentally, is whether the Organization of the Petroleum Exporting Countries puts its traditional role of fixing supply to prop up prices – a position favored by Iran and other members such as Algeria - at the top of its agenda.
Or, in response to rising supply outside the group, OPEC steps back from attempting to manage the market - a view in line with the thinking of Saudi Arabia, which led a shift in OPEC strategy in November 2014 when the group refused to cut output.
The debate matters for the oil industry and wider economy as oil prices, which began a slide from over $100 a barrel in June 2014 due to oversupply, deepened their collapse in response to OPEC's decision not to cut.
Crude (LCOc1) hit a 12-year low in January this year and is now trading around $45.
That policy shift continues to divide the group, with members disagreeing about the need to support a fair oil price and boost revenues.
The earlier LTS draft seen by Reuters carried annotations from Iran and Algeria for measures to support prices such as a price target or floor and a return to OPEC's quota system.
Saudi Arabia and its Gulf OPEC allies oppose a return to quotas, which were dropped in 2011.
The long-term report is prepared by OPEC's research team in Vienna and traditionally cautions that it does not articulate the final position of OPEC or any member country on any proposed conclusions it contains.
OPEC officials will meet again this year in an attempt to reach agreement on the long-term strategy, sources said. Two OPEC sources described the areas of disagreement as relatively small.
Still, the likelihood of a return to production management by OPEC appears remote. Last month, a deal to freeze output by OPEC and non-member producers fell apart after Saudi Arabia demanded that Iran participate.
Iran has refused to limit production as it seeks to regain market share following the lifting of Western sanctions in January, although sources have said Tehran would do so once output has recovered to the pre-sanctions level.
OPEC's oil ministers hold their next meeting on June 2 in Vienna to discuss output policy.