OPEC+ experts review virus oil-market impact before meeting
OPEC and its allies have started reviewing their estimate of the damage to oil demand from the coronavirus, laying the ground for ministers to discuss production cuts at a crucial meeting later this week.
The Organization of Petroleum Exporting Countries and allies face an unprecedented challenge as the epidemic that started in China threatens to become a global pandemic. Growth in fuel consumption could be wiped out this year and prices have just had their biggest weekly drop since the global financial crisis.
To secure a supply cut that could stop the rout, the group must overcome Russian resistance while also grappling with the risks of bringing together delegations from 23 nations as the deadly disease continues to spread. One of those members, Iran, has a serious outbreak at home affecting top government officials.
There's an "extremely grave situation" in the oil market, Algerian Energy Minister Mohamed Arkab said on Tuesday, according to state-run Algeria Press Service. "Algeria calls for a concrete, credible, cohesive and rapid action."
In an effort to limit potential contagion, OPEC will take the unprecedented step of blocking journalists from entering its Vienna headquarters during the meeting, while also seeking to limit the size of members' delegations to "a bare minimum," according to a statement. The cartel's meetings typically attract a contingent of hundreds of officials, reporters, TV crews, analysts and consultants from around the world.
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The OPEC+ Joint Technical Committee gathered in the Austrian capital on Tuesday to reappraise the impact of the epidemic. At their previous meeting in February, they recommended a production cut of 600,000 barrels a day, but the outbreak has worsened since then.
"The recommended 600,000 barrel-a-day additional cut for the second quarter of 2020 will be seen as too little," Mohammad Darwazah of consultant Medley Global Advisors said in a note. "It is clear that the group is mulling a deeper production pullback."
OPEC+ has been struggling to manage the price impact from the U.S. shale boom since it was formed in late 2016. It launched a new round of supply curbs at the start of this year, removing about 2.1 million barrels a day from the market. Any cut agreed on this week would deepen that reduction.
The group's experts are looking at five scenarios for demand, said one delegate, who asked not to be named because the talks were private. Those numbers will determine whether the previous recommendation for the size of the cut is maintained, said another delegate.
With flights canceled in Europe, schools closed in Japan, towns quarantined in Italy and a rising death toll from Iran to Washington state, the coronavirus crisis has gone global, and with it, its impact on energy demand. For only the fourth time in almost 40 years, oil consumption may not grow at all in 2020, according to a growing minority of traders, investors and analysts.
That possibility is reflected in crude, which slumped 16% in New York last week, the biggest drop since December 2008. The market has rebounded somewhat, but at about $48 a barrel on Tuesday prices remain too low for most of the cartel's members to balance their budgets.
