The OPEC+ group should not be complacent about the impact of the coronavirus outbreak on oil demand, Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman told reporters on Tuesday, a day after oil prices tanked on renewed concern that the outbreak may not be contained in the coming days.
Earlier this month, the energy minister of OPEC’s top producer reportedly compared the coronavirus impact on demand to a “house on fire,” Bloomberg reported last week, quoting anonymous sources who had heard the minister’s comments at an event closed to the press. When your house is on fire, “you can either treat it with a garden hose and risk losing the building, or call the fire brigade,” the minister reportedly said.
On Tuesday, the Saudi energy minister sought to reassure the market with comments to reporters that the oil producing countries are in constant communication to discuss how to respond to the slump in demand.
“We did not run out of ideas, we haven’t lost our phones and there are always good ways of communicating through conference calls and technology is very helpful,” Prince Abdulaziz bin Salman said, as carried by CNBC.
Russia—which hasn’t officially announced yet its position on potentially deeper cuts—is “positively engaged,” the Saudi minister said today, referring to last week’s comments of Russian Energy Minister Alexander Novak that Moscow continues to hold talks with its partners in OPEC about the situation on the oil market.
Answering a question about a potential fracture in the OPEC-Russia oil alliance, Prince Abdulaziz bin Salman told CNBC:
“I’m confident of our partnership as OPEC+, I’m confident that everyone in the OPEC+ is a responsible and responsive producer.”
OPEC and its non-OPEC allies led by Russia are meeting in Vienna next week to discuss a potential response to the demand destruction caused by the coronavirus outbreak.
By Tsvetana Paraskova for Oilprice.com
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Aside from the very strict measures being implemented in China and around the world to combat the outbreak, OPEC and the whole world can only wait and see.
OPEC should be very weary of calls by the likes of the International Energy (IEA), analysts, investment bankers and commodity traders for OPEC to deepen the cuts. They are merely setting a trap for OPEC. They aren’t motivated by their care for the welfare of OPEC members but by their own political agenda. For them, cutting more of OPEC’s production will lead to a reduction of its share in the global oil market and a weakening of its influence. Still, why don’t they ask the United States to cut its production instead. After all the US Energy Information Administration (EIA) in cahoots with the IEA and Rystad Energy never cease hyping about projected increases in US shale oil production.
I am sure that Prince Abdulaziz bin Salman is very well versed with the intricacies of the global oil market and that is why he should prevent the organization which his country leads from falling into the trap.
Once the outbreak is declared under control, global oil demand and prices will recoup all their recent losses and more. Moreover, China’s economy will most probably behave like someone who has been starved of food. Its appetite for crude oil will be so rapacious with oil imports surging to 11.76 million barrels a day (mbd) as they did in the last quarter of 2019.
Even if global oil demand is slashed by 1.0 mbd because of the coronavirus outbreak, it will still reach 101.43 mbd in 2020 compared with 101.23 mbd in 2019 as things stand currently.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London