OPEC+ delegates meet in Vienna to tackle coronavirus' impact on the oil market

Vienna — Stung by a 20% slide in global crude prices, delegates from key producing countries, led by Saudi Arabia and Russia, will attempt today in Vienna to assess the economic impact of the coronavirus outbreak and determine whether immediate output cuts are recommended.

The spread of the virus has dampened oil demand, especially in China, where the infection originated, but the depth of the contraction and how long the epidemic will last will be trickier to peg.

Crude produced by the OPEC+ coalition – which includes OPEC, Russia and nine other allies – is very exposed to the outbreak, with China buying more than 70% of its supplies from the group.

Several members, including Saudi Arabia, are pressing for the bloc to institute production cuts of some 500,000 to 1 million b/d, according to sources, on top of the 1.7 million b/d in curbs that OPEC+ began instituting in January.

To implement the additional cuts, the Saudis have pushed for the previously scheduled March 5-6 ministerial OPEC+ meeting to be moved forward. But others are yet to be convinced.

Russia ready

Russia has said it is ready to cooperate and is monitoring the situation with its OPEC+ colleagues.

"JTC is meeting and studying the OPEC report on the current situation and forecasts," Russia's energy minister Alexander Novak told reporters, as quoted by Prime news agency. "Within two days this work will be carried out, and we will have the opportunity to discuss it further. If there is such a need, we are ready to collectively hold a meeting at the ministerial level."

Novak cautioned there is still a lot of uncertainty on the impact of the outbreak on oil demand.

"I am not ready to speak about concrete proposals right now, because let me repeat - now it's important to assess the situation and forecasts. There's a lot of uncertainty, perhaps these are panic fears," he said.

Iranian oil minister Bijan Zanganeh said Sunday that the meeting should not be moved forward unless a decision on further cuts was reached in principle.

The OPEC+ Joint Technical Committee, composed of delegates from several member countries and co-chaired by Saudi Arabia and Russia, will attempt to hash out a consensus on a course of action when it meets today and Wednesday.

The JTC is typically tasked with monitoring market conditions and tracking member compliance with production quotas.

Sources have said the OPEC secretariat has prepared a report on the coronavirus impact for members to review. China's ambassador to international organizations in Vienna, Wang Qun, was seen entering the OPEC building in Vienna where he is expected to brief the committee to give China's point of view.

Crude oil prices have plunged 20% over the past two weeks, with ICE Brent futures dropping to a one-year low of $53.95/b on Tuesday. The benchmark was trading higher at around 54.82/b at 11:38 GMT.

Deeper cuts

Analysts say the onus will again be on Saudi Arabia to convince other members that prompt action needs to be taken.

"Saudi Arabia will panic over a return of the contango in Brent and it will likely act promptly to try to prevent the contango from widening over storage costs," said Olivier Jakob at consultancy Petromatrix

"Having other OPEC+ countries cutting production will be much harder to achieve," he added. "For traders and investors, any buying on the back of a Saudi cut will be exposed to the risk of Libya coming back."

Giovanni Staunovo at UBS expects the coalition to make deeper cuts as oil demand growth is likely to take a hit from the impact on transportation from the coronavirus epidemic.

"We believe the OPEC+ will announce an additional production cut of at least 500,000 b/d for the second quarter eventually extending the cuts until the end of the year, with a review at the next ordinary meeting in June," he said in a recent note.