(The author is a Reuters Breakingviews columnist. The opinionsexpressed are his own.)

By George Hay

LONDON, June 22 (Reuters Breakingviews) - Saudi Arabia is ona tightrope. The de facto leader of the Organization of thePetroleum Exporting Countries is trying to thrash out a deal toboost oil supply with the groups members this week in Vienna.If it fails, theres a potential safety net.

Saudi, which in May produced a third of OPECs total outputof 32 million barrels per day, has presided over an effective1.7 million bpd output cut that since November 2016 has helpedsend Brent crude prices up over a third to $74 a barrel. Alongwith non-OPEC producers including Russia it now wants to changecourse, partly because high prices would tempt U.S. shaledrillers to produce more and regain market share, and partlybecause President Donald Trump blames OPEC for high prices.

Iran, which supplies 12 percent of OPEC output, disagrees.OPEC has 3.4 million bpd of excess capacity that could hit themarket in three months, according to the International EnergyAgency. But Tehran itself has limited scope to pump more. Thatmeans Riyadh and Moscow could offset losses from any fall inprices by boosting production. Iran and other members producingat peak capacity cannot.

A mutually acceptable compromise appears achievable. In MayOPEC was supposed to cut 1.18 million bpd, but ended up cuttingover 1.86 million bpd largely because Venezuela involuntarilyovershot its target due to mismanagement and chronicinfrastructure failings. Riyadh and Moscow could please Trump bycalling for a 700,000 bpd hike, and console Tehran by sayingthat they are just restoring the status quo.

The bad news is Venezuelas troubles are so acute its outputmay fall further, while sanctions on Iran will soon bite.Together, that could remove a further 1.5 million barrels perday, according to one IEA scenario. That means even a sizeablehike in output of 1 million barrels might not be enough to stopprices rising. Saudi would have an awkward choice: irk Trump, orrisk an OPEC breakup by pumping more oil unilaterally.

Trump could ride to the rescue. Transport of goods by shipand plane constitute a key chunk of the IEAs forecast for 2019oil demand to hit 100 million bpd. If trade tensions betweenChina and the U.S. escalate, demand will likely fall, and aprolonged supply squeeze wont matter so much. Saudis unwieldybalancing act could then persist.

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CONTEXT NEWS

- OPEC will seek agreement on Friday to raise oil productiondespite opposition from Iran, which has threatened to block themove as it faces U.S. sanctions, Reuters reported on June 22.

- Oil producers could agree output hikes of 1 millionbarrels per day at this weeks Vienna meeting, OPEC sources toldReuters on June 21.

- Iran signalled it could compromise on a small increase inOPEC oil output when the group meets, Reuters reported on June20. Iran said on Tuesday OPEC was unlikely to reach a deal.

- Brent crude was trading at $73.93 as of 0746 GMT on June22.

- For previous columns by the author, Reuters customers canclick on HAY/

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<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^Iran signals compromise for modest rise in OPEC oil output urn:newsml:reuters.com:*:nL8N1TM13Z Iran rules out OPEC deal as Russia, Saudi push for oil outputhike urn:newsml:reuters.com:*:nL8N1TL262 OPEC edges closer to raising oil output; Irans agreement is key

urn:newsml:reuters.com:*:nL8N1TN1J3 OPEC struggles for deal to ease supply cuts as Iran resists urn:newsml:reuters.com:*:nL8N1TO0SB BREAKINGVIEWS-OPEC supply easing is more reset than u-turn urn:newsml:reuters.com:*:nL5N1SW1IW

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Editing by Neil Unmack and Bob Cervi) ((george.hay@thomsonreuters.com; Reuters Messaging:george.hay.thomsonreuters.com@reuters.net))