OPEC+ is meeting urgently to discuss moves in the face of an inexorable slide in oil prices that has brought Brent crude far below $60 a barrel and that saw West Texas Intermediate dip below $50 this week.
“Given oil’s fast and furious fall -- and the havoc that it could wreak on government finances across the producer group -- it looks like they don’t believe they have the luxury of time,” RBC Capital’s Helima Croft said as quoted by Bloomberg.
Bloomberg earlier reported, citing oil industry insiders, that demand in China could slump by as much as 20 percent because of the coronvarius outbreak. Due to the extensive travel restrictions and factory activity stalling, this 20-percent plunge in oil demand would be equal to around 3 million barrels per day (bpd) and this would make it the most sudden shock to global oil demand since 9/11, according to Bloomberg.
The coronavirus has claimed more than 360 lives, which has made it more deadly than the SARS epidemic from 2003. The outbreak is also close to being declared a pandemic, which won’t help oil prices either.
OPEC+ was already struggling with prices before the virus outbreak but now the situation looks a lot gloomier. There is precious little the cartel could do except deepen the oil production cuts further. Yet some would say Saudi Arabia, at least, is already cutting to the bone. Further cuts are bound to affect revenues negatively while they will not necessarily affect prices positively.
In fact, there is a solid chance they won’t affect prices much at all. The Libyan oil terminal blockade should have boosted prices considerably, with the production outage now having taken 1 million bpd off the market. Yet it has not. Neither have the otherwise bullish events that came before the blockade, notably the spike in U.S.-Iran tensions at the start of the year, which pushed prices up only for a short while before they retreated.