A gas flame near the Khurais oil field, about 99 miles from Riyadh, Saudi Arabia. Ali Jarekji/Reuters Saudi Arabia has offered to reduce oil production if its rival Iran agrees to cap its own output this year, in a major compromise ahead of talks in Algeria next week, three sources familiar with the discussions told Reuters.

The offer, which has yet to be accepted or rejected by Tehran, was made this month, the sources told Reuters on condition of anonymity.

Riyadh is ready to cut output to levels seen early this year in exchange for Iran freezing production at the current level, which is 3.6 million barrels a day, the sources said.

"They (the Saudis) are ready for a cut but Iran has to agree to freeze," one source said.

Two more sources confirmed the offer was presented to Tehran.

The first source did not say by how much Riyadh would cut if Iran agreed to freeze at 3.6 million barrels a day, which has been the OPEC nation's output for the past three months.

Riyadh's production has spiked since June because of summer demand, reaching a record high in July of 10.67 million barrels a day and edging down to 10.63 million barrels a day in August.

From January to May, Saudi Arabia produced about 10.2 million barrels a day.

Two sources said Saudi Arabia's Gulf OPEC allies the United Arab Emirates, Qatar, and Kuwait were expected to contribute to any reduction if an agreement were reached.

Saudi Arabia, by far the largest producer in the Organization of the Petroleum Exporting Countries, will shoulder the biggest cut, the sources said.

The proposal can be seen as a shift by Riyadh, which orchestrated the current OPEC policy in 2014 by refusing to cut output alone to support prices and chose to defend market share against rivals, particularly high-cost producers.

A fall in oil prices to $30 to $50 a barrel from levels as high as $115 seen in June 2014 led to a boost in global oil demand and a decline in high-cost supplies such as those from the US.

But the Saudi strategy caused a rift in OPEC, whose poorer members have faced a budget crisis and unrest. Riyadh and its Gulf allies also had to tighten their belts after a decade of generous public spending.

As the pain of cheap oil grew and pressures on Saudi finances increased, Riyadh and Tehran signaled they were willing to show more flexibility to prop up prices.

The first attempt at a global production pact collapsed in April, however, when Riyadh insisted Tehran participate. Iran has said it will not join any such agreement until it regains market share and boosts output to pre-sanctions levels of about 4 million barrels a day.

OPEC members will meet on the sidelines of the International Energy Forum, which groups producers and consumers, in Algeria on September 26-28. Russia, which is not part of OPEC, is also attending the forum.

(Reporting by OPEC team; Editing by Dale Hudson)