* Saudi Arabia may shoulder cut burden
* Exemptions make for difficult math
* Non-OPEC participation in doubt

A month into their endeavor to finalize a preliminary freeze pact agreed in Algiers, OPEC countries will gather in Vienna on Friday for a two-day technical meeting to try and bridge the substantial gaps in their positions.

Though OPEC's 14 members emerged from Algiers with a tentative plan to freeze their total oil output between 32.5 million to 33 million b/d -- its first cut since 2008 -- almost immediately divisions emerged within the group about how to accomplish that.

Iraq is insisting on a higher quota or an exemption from the freeze as it battles the Islamic State militant group.

OPEC kingpin Saudi Arabia, meanwhile, has insisted that all members must act collectively in any output deal, though it has said it will allow "special consideration" -- including potentially exemptions -- for Iran, Libya and Nigeria, as they recover from presumably temporary setbacks.

The cooperation of key non-OPEC producers, likely vital to a meaningful deal that the market views as credible, is an open question, as well.

A flurry of bilateral and multilateral meetings over the last few weeks has not resolved any of these issues, so the technical meeting that begins Friday will be closely watched for any signs of consensus -- or discord.

The meeting will not involve country ministers but experts from each country, as a precursor to higher level meetings scheduled for next month, leading up to a self-imposed November 30 deadline to finalize the freeze.

"The stakes are high this time," said Vandana Hari, a Singapore-based analyst with Vanda Insights. "No one has any illusions about the rocky road to cobbling together a production cut agreement and reimposing production quotas on member countries."

OPEC would have to cut between 390,000 to 890,000 b/d from September levels to meet the freeze range, according to the organization's own estimate.

More mundane details -- a start date for enforcement, an end date, and monitoring mechanisms -- also need to be agreed.

Mindful of April's Doha summit collapse, when a deal to freeze production at January levels fell apart at the 11th hour, causing OPEC much embarrassment, most market watchers expect some kind of agreement to emerge.

Whether it will provide any significant market impact and accelerate the drawdown of stocks, as OPEC has said is the aim, remains to be seen.

"OPEC will have to come up with a plan, as it would otherwise be seen as a huge failure," said Ole Hansen, Copenhagen-based head of commodity strategy for Saxo Bank. "To fail when action is promised could trigger a big and unwanted selloff in the market."

EXEMPTIONS IN FOCUS

Many forecasters, including the International Energy Agency and the US Energy Information Administration, have said the OPEC freeze could accelerate the market's rebalancing, which otherwise would occur in the back half of 2017, though the devil will be in the details.

How OPEC plans to accommodate the exemptions for Iran, Libya and Nigeria is among the key unknowns.

Libya has said its production now exceeds 580,000 b/d, with more to come, now that its previously blockaded ports are returning to full action.

Nigeria, meanwhile, has said its production is up to 1.9 million b/d, with a capacity of 2.4 million b/d, as it attempts to broker a lasting truce with militants that have attacked oil pipelines and other facilities.

Iran has seen its production reach 3.67 million b/d, according to OPEC's most recent monthly oil market report. The country has ambitions to reach the approximately 4 million b/d output level it had before Western sanctions imposed over its nuclear program hobbled its oil sector.

Those exemptions likely will cause more of the burden of cutting to fall on Saudi Arabia, which has repeatedly declined to lower its output without reciprocity from other producers.

Several other non-exempt OPEC countries are not in any financial condition to contribute to a production cut, such as Algeria and Venezuela.

Working in OPEC's favor is that the peak summer air conditioning season has passed, reducing Saudi Arabia's direct crude burn.

Harry Tchilinguirian, London-based global head of commodity strategy for BNP Paribas, said he does not expect Saudi Arabia to cut much further than it has to, given the market share strategy that it has embraced.

Cuts too far could cause prices to rebound, risking a loss of market share to US shale producers and other rivals within and outside of OPEC.

"We doubt that Saudi Arabia will want to assume the entire burden of output adjustment alone and hand back all the gains in market share that it achieved over past two years," Tchilinguirian said.

FURTHER HURDLES

Analysts also doubt that OPEC will be willing to accommodate Iraq's request for a higher quota or exemption.

Iraq officials have insisted the country will not reduce its output from current levels of around 4.7 million b/d -- and could even raise production -- no matter how the freeze is implemented.

But agreeing to an exemption for Iraq could prompt other countries to also seek concessions, rendering the freeze moot.

"Unlike Iran, Libya and Nigeria, Iraq's excuse is flimsy," Hari said. "Acceding to it risks opening the barn door."

Venezuela, in particular, faces a mounting political crisis as opposition leaders seek to oust President Nicolas Maduro, while state-owned PDVSA sees its production at risk of collapsing due to debt pressures and civil unrest.

Meanwhile, OPEC has invited several non-OPEC producers to the second day of the technical meeting this week.

Russia has accepted the invitation, but OPEC officials have not revealed which other countries will attend.

Russia has said it would prefer to freeze production at record-high September levels of some 11.11 million b/d instead of cutting, but has not committed to anything specific.

Market watchers say a Russian freeze at record levels would do nothing to accelerate the rebalancing, and given the country's lack of compliance with previous agreements with OPEC to curtail production, many analysts remain dubious that Russia will provide any meaningful cut.

"Without Russia on board, this deal will do little to support the market in the short term as it leaves the risk wide open of another major long liquidation phase, which in the past have moved the market by up to 20%," Hansen said.

--Herman Wang, herman.wang@spglobal.com
--Edited by Alisdair Bowles, alisdair.bowles@spglobal.com

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