Faced with a slump in demand and plunging oil prices, OPEC’s top producer and de facto leader Saudi Arabia is asking members of the OPEC+ group to consider an additional collective cut of 1 million bpd when the coalition meets in Vienna next week, Financial Times reports, citing five people with knowledge of the talks.
The Saudi proposal has been discussed this week during a visit to Saudi Arabia of OPEC’s Secretary General Mohammad Barkindo, the FT reports.
The 1-million-bpd collective cut would be 400,000 bpd higher than an initial proposal of a technical panel of the OPEC+ group which proposed earlier this month that the coalition reduce production in Q2 by 600,000 bpd to counter the slump in oil demand caused by the coronavirus outbreak.
Within OPEC, several of the key members are leaning toward a deeper cut, four sources familiar with the talks told Reuters on Friday.
The OPEC+ group’s joint technical committee (JTC) issued a proposal on February 8 that the producers extend the cuts as-is until the end of 2020 and deepen those cuts in the second quarter in response to the fact that the coronavirus “has had a negative impact on oil demand and oil markets.”
After that proposal, however, oil prices have slumped as the coronavirus spread fast outside China to Europe and the Middle East, and the equity and oil markets saw massive sell-offs. In just a week, oil prices lost more than $8 a barrel, and Brent Crude was trading at $50 early on Friday.
The demand destruction and the oil price rout make deeper cuts more urgent for OPEC’s leader Saudi Arabia, which can’t be happy with $50 oil considering that it needs $80 per barrel to balance its budget.
Meanwhile, Russia continues to refuse to announce its position regarding deeper cuts by the OPEC+ coalition, but admitted that the coronavirus outbreak could lead to additional downward revisions to the global oil demand growth outlook for 2020.
In view of the price slide and continued fears over global economic slowdown and further demand loss, oil prices could further slump if OPEC+ doesn’t act decisively next week.
“We believe the market will be disappointed with anything that falls short of the JTC recommendation,” Warren Patterson, ING’s Head of Commodities Strategy, said on Friday.
By Tsvetana Paraskova for Oilprice.com
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