Coronavirus may push OPEC to further extend output cut deal

Oil&Gas Materials 28 January 2020 11:29 (UTC +04:00)
Coronavirus may push OPEC to further extend output cut deal

BAKU, Azerbaijan, Jan. 28

By Leman Zeynalova – Trend:

Coronavirus may push OPEC to further extend the output cut deal, Trend reports citing Fitch Solutions Macro Research (a unit of Fitch Group).

“Media reports have unnamed OPEC sources raising the prospect of deeper production cuts by the group to stem the impact of the virus on oil prices. Oil prices fell sharply on Monday on concerns about a protracted economic slump in the Chinese economy from effect the coronavirus outbreak in China. Intraday prices swung lower having so far narrowed to just above $59 per barrel, a decline of 2.9 percent off Friday’s closing price for Brent,” reads a report released by Fitch Solutions.

The report says that Saudi Energy Minister Prince Abdulaziz bin Salman sought to reassure markets, with a statement that OPEC would respond to concerns about the coronavirus fallout on oil demand.

“While unclear on the actions to be taken, this could include increasing the duration newly enacted cuts beyond March 2020 or even committing to deeper production cuts. Prince Abdulaziz bin Salman was confident that any negative global economic factors could be mitigated by continued or even increased OPEC supply management,” said the company.

Fitch Solutions anticipates such action by OPEC will help support confidence in the market and provide some price stability and the setting for prices to recover, once the number of virus cases begins to wane, although it is unclear at this point when that will be.

“However we do note that sentiment remains bearish in the market, as evident by lack of positive price action from the recent outages in Libyan production. OPEC will face the persistent headwinds of lessened demand in their attempt to stabilise prices through supply management,” reads the report.

While the immediate economic impacts have yet to hit physical oil demand, negative oil price sentiment is building as Monday’s price drop reveals, according to Fitch Solutions.

“As the peak of the virus has yet to be established much of the potential impact on the global economy is unknown. Likewise, the potential level of OPEC+ action is difficult to quantify given the data available. However, taken together OPEC and Russia were holding 1.9mn b/d of oil out of the market in December 2019 meaning any substantial increase would need to be on par with the outages of September 2019 which would be a challenge to sustain. In addition, we note that OPEC+ agreement and compliance often varies significantly for some members making further production cut increases challenging.”


Follow the author on Twitter: @Lyaman_Zeyn