As leading OPEC producers downplayed fears of crippled demand growth in an attempt to calm the oil market on Monday, the cartel is said to be considering extending the ongoing production cuts or even deepening them to stave off excessive price slides due to the coronavirus outbreak in China, an OPEC source told S&P Global Platts.
According to S&P Global Platts’ source in OPEC, the ministers of the OPEC+ coalition are in discussion to closely watch the market and get ready “to do anything if there is a need for it.”
OPEC members were already said to be discussing a potential extension of the oil production cuts through the end of 2020, because of the still bearish outlook on oil demand growth, an OPEC source told Russian news agency TASS on Friday. A day earlier, Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman had said that all options are on the table for the next OPEC+ meeting in March, including further cuts in oil production.
But the spread of the coronavirus and the rising death toll from it spooked market participants in the past few days and dragged oil prices below $60 a barrel Brent Crude, below OPEC’s supposedly comfortable level of prices and way below the $80 a barrel price which OPEC’s leader and largest producer, Saudi Arabia, needs to balance its budget this year.
The Saudis tried to jawbone the market higher early on Monday, and the United Arab Emirates (UAE) chimed in to downplay what it called a “market over-reaction” over fears that the virus will erode oil demand in China—the world’s largest oil importer and main oil demand growth driver.
“The Kingdom of Saudi Arabia and other OPEC+ producers have the capability and flexibility needed to respond to any developments, by taking the necessary actions to support oil market stability, if the situation so requires,” Energy Minister Prince Abdulaziz bin Salman said in a statement carried by the official Saudi Press Agency.
In a separate statement, the UAE’s energy minister Suhail al-Mazrouei said, as carried by Reuters:
“It is important that we do not exaggerate projections related to future decreases in oil demand due to events in China, and the market does not over-react based on psychological factors, driven by some traders in the market.”
By Tsvetana Paraskova for Oilprice.com
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The outbreak of the coronavirus is an aberration. The Chinese authorities are focusing their attention on containing the spread of the virus and dealing with its as fast as possible.
Before the outbreak of the coronavirus, the fundamentals of the global oil market were positive with oil prices headed upward particularly in the aftermath of the signing of Phase 1 of the trade deal between the U.S. and China. The proof is that the minute de-escalation started in December 2019 China’s crude oil imports broke all previous records and hit 11.76 million barrels a day (mbd).
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London