OPEC+ committee still deadlocked on oil cuts, will meet again Thursday

More than 10 hours of negotiations Wednesday on the second day of an emergency summit have failed so far to bridge a gap between restive OPEC kingpin Saudi Arabia and critical ally Russia on how the oil producer coalition they lead should respond to the coronavirus-triggered price shock.

Delegates on a key advisory committee will extend their talks to a third day, with Russia still demurring on committing to deeper production cuts, according to sources involved in the discussions. Russia prefers to merely extend the coalition's existing supply accord beyond its March expiry, one delegate said, asking not to be named due to the sensitivity of the talks.

Crude prices, which had rallied Wednesday on reports out of China that a medical treatment for the coronavirus had been developed, pared some of their gains as delegates wrapped up deliberations at the OPEC secretariat. At 1946 GMT, front-month ICE Brent futures were trading at $55.33/b, up 2.54% from Tuesday's close but still down some 15% in the past two weeks.

The committee is scheduled to try again at 9 am local time (0800 GMT).

Since the committee is only advisory, any decision would need to be ratified by a formal ministerial summit. The next one is scheduled for March 5-6, but delegates have said it may be moved forward if a production policy can be hashed out.

Any new output restraint would come on top of the group's existing 1.7 million b/d output cut accord that began in January and expires at the end of March.

The fact that delegates are returning for more talks indicates that not all hope is dead for a deal to be struck, said Helima Croft, global head of commodity research for RBC Capital Markets, who was in Vienna to track the negotiations. Failure to deliver on an agreement tomorrow, however, could result in a sharp market sell-off, she added.

"If it were intractable, they would have left by now," Croft said. "I think it is a quest for consensus still. But certainly it shows that this is not easy."

RATTLED SAUDI ARABIA

The spread of the coronavirus has fed into already bearish market sentiment, with traders shrugging off Saudi Arabia's overcompliance with its production quota and Libya's loss of nearly 1 million b/d of output due to an internal power struggle.

Saudi Arabia, which exports the most crude globally, came into the week rattled by the price plunge, which threatens to strain the kingdom's budget at a time when it is trying to implement structural economic reforms.

It had floated the idea of an emergency ministerial summit and proposed an additional shared production cut of at least 500,000 b/d, sources said. But with not all members on board, the coalition instead agreed to convene a delegate-level, advisory technical committee meeting this week to see if a consensus on production policy could be forged.

The meeting was scheduled over two days, an extraordinarily long agenda for a committee that often conducts its business by videoconference, especially given the lack of clear economic data on which to base a recommendation.

The discussions began Monday with a briefing by Vienna-based Chinese ambassador Wang Qun, who told delegates that global markets were "overreacting" to the coronavirus outbreak and urged calm. Though he acknowledged that the spread of the infection had likely not yet peaked, he said the Chinese government was taking substantial steps to contain the disease.

An OPEC delegate, speaking on condition of anonymity, said the presentation was well-received, "but we know that's the official line and we need to consider our own outlook."

REVIEWING SCENARIOS

Delegates said the committee examined a number of scenarios, trying to game plan for different timelines and trajectories of the virus outbreak.

Analysis by the OPEC secretariat presented to the committee estimated a likely demand fall of between 200,000 to 400,000 b/d for the year — roughly a 2-4% contraction in global consumption — due to the spread of the infection.

That is a more modest impact than what many forecasters are projecting. S&P Global Platts Analytics estimates a demand hit of between 290,000 b/d and 1.01 million b/d; that worst-case scenario would drop 2020 oil demand growth to the lowest since the financial crisis of 2009-09.

Crude produced by the 23-member OPEC+ coalition is very exposed to the coronavirus, with China buying more than 70% of its supplies from the group. China is the world's second largest economy and biggest importer of crude.

Jet fuel demand has also taken a hit, with several airlines — including flag carriers of several OPEC members — suspending flights to and from China, and several Chinese refiners have accordingly slashed their run rates.