Factbox: OPEC+ set to discuss deeper oil output cuts as COVID-19 takes toll on demand

OPEC and its coalition partners are meeting in Vienna on March 5-6 to discuss deeper cuts to crude production amid weaker global demand caused by the COVID-19 outbreak, which has spread to 72 countries outside China.

Saudi Arabia has for weeks urged fellow partners to embrace further reductions, with heavyweight Russia reluctant to show its hand. An additional 600,000 b/d in cuts have been touted, although some reports suggest the reduction could be 1 million b/d should all participants agree.

COVID-19 threatens the global economic and oil demand outlook. While China appears to be on the verge of containing the outbreak, cases outside of the country continue to grow and the potential impact on demand will be something the 23-country oil alliance will have to consider.

According to Johns Hopkins University, there were 94,875 confirmed cases of the virus Wednesday, with 80,270 of those in China.

"A weaker demand outlook could be mostly offset by greater supply losses (Libya, Venezuela, and likely deeper OPEC+ cuts for the second quarter) once it becomes clear the virus can be contained. This should generally keep Brent in the mid-to-low $50s/b range for the next few weeks," said Shin Kim, head of supply and production at S&P Global Platts Analytics.

"We recognize that until there is further clarity on the outbreak, Brent prices could face pressure into the $40s/b. On the other hand, central bank support as seen with the recent Federal Reserve announcement [cutting interest rates] is providing a key backstop," she added.

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PRICES

Oil

**Dated Brent was assessed by S&P Global Platts at $51.72/b Wednesday, down roughly 20% from January 20, when commodities markets first began reacting to the virus.

**The May/June ICE Brent spread settled in a 12 cents/b contango Wednesday, reflecting concerns about oil demand destruction.

**The front-month/third-month Dubai spread, one key market indicator for spot market sentiment of Middle East crude, fell more than $2/b between January and February, into contango.

**The Singapore jet crack spread against Brent ended Wednesday at $6.12/b, down from $11.34/b January 20.

**The Rotterdam jet fuel crack against Brent ended Wednesday at $8.18/b, down from $14.17/b January 20.

**The New York Harbor jet crack against Brent ended Wednesday at $10.14/b, down from $14.19/b January 20.

LNG

**Platts JKM, the LNG price benchmark for the Northeast Asia region, ended Wednesday at $3.163/MMBtu, rising from $3.713/MMBtu February 14, but down from $4.184/MMBtu January 20.

**FOB Gulf Coast LNG prices have also recovered somewhat, ending Wednesday at $2.378/MMBtu. Still, that was down from $2.677/MMBtu January 20.

Metals

**Front-month rebar futures on the Shanghai Futures Exchange closed at Yuan 3,457/mt Wednesday, having risen from a recent low of Yuan 3,374/mt February 19, and down 6.5% from January 20.

**Platts assessed the 62% Fe Iron Ore Index at $90.95/dry mt CFR North China Wednesday, up from its February 3 nadir of $79.80/dry mt, but still down 5% from January 20.

TRADE FLOWS

Oil

**S&P Global Platts Analytics has cut its 2020 demand oil growth projection by 1.1 million b/d since January to 240,000 b/d. But Claudio Galimberti, head of refining and demand analytics, gives that a "'negative outlook,' which means it's likely we will revise it further down."

**Goldman Sachs expects oil demand to contract by 150,000 b/d in 2020, reversing an original call for 1.1 million b/d of growth before the virus.

**Refineries in China are estimated to have cut throughput by 2.9 million b/d in February, according to Platts Analytics. China's oil demand is expected to grow by only 170,000 b/d in 2020, 20% of its original estimate.

**Refinery run rates at China's state-owned oil giants - Sinopec, PetroChina, CNOOC and Sinochem - fell to a record low 67% of nameplate capacity in February, from 85% in January. Run rates for independent refineries in Shandong plunged to 35-36% from 63.5% in January, with 15 refineries idle in February.

**China buys more than 70% of its crude from OPEC and its allies, making demand destruction caused by the spread of the virus critical for the group as it meets this week.

**OPEC's response is complicated by geopolitics and the different economic needs of its members, with Saudi Arabia producing well below its quota, but Iraq and Nigeria lagging. Russia is pumping near capacity.

**Libya's oil output has slumped to as low as 120,000 b/d -- its lowest level since late-2011 when it was again in the throes of civil war. The African country was producing around 1.22 million b/d before the blockade of its oil terminals began in mid-January.

**OPEC+ started cutting 1.7 million b/d from January 1, up from a 1.2 million b/d reduction last year. The deal runs to the end of March.

**Saudi Arabia agreed to cut production by an additional 400,000 b/d should fellow members stick to their commitments. The policy could be extended or incorporated into any new deal.

**Oil majors are likely to keep investment plans intact in the coming months but could have to reassess should oil prices drop well below $50/b for a sustained length of time, according to analysts.

**Key international airlines have suspended or reduced flights due to the virus, reducing jet fuel demand.

**According to the International Air Transport Association, Asia-Pacific global passenger traffic in January climbed 2.5% from January 2019, "which was the slowest outcome since early 2013 and a decline from the 3.9% increase in December."

**State-run Chinese refining giants were quick to react to jet fuel's underperformance in the Asian market with both Sinopec and PetroChina stating that they will lower production to minimal levels.

**US crude exports climbed nearly 500,000 b/d to 4.15 million b/d the week ending February 28, US Energy Information Administration data showed Wednesday. However, US crude exports are expected to slow as the virus has hit Asian demand.

**The Port of Corpus Christi expects its February crude exports to slip from January's record-high 1.38 million b/d due to ripple effects from coronavirus.

LNG

**US LNG suppliers are reaching out to potential alternate buyers in Asia and Europe to sell cargoes diverted from China following the outbreak.

**China's state-owned CNOOC has declared force majeure on LNG contracts.

**Several US developers have delayed final investment decisions on LNG projects, with one warning it was running out of cash to continue normal operations.

**Tellurian will cut spending and try to extend a loan due in May to give it some breathing room, as it appears unlikely the developer will meet a previous target to build sufficient commercial support by the end of this month to advance its Driftwood LNG project in Louisiana.

**In the past two weeks alone, Cheniere Energy has disclosed a second cancellation of a cargo scheduled to load in April and postponed a final investment decision on a proposed midscale liquefaction expansion in Texas.

**Australia's LNG Limited floated a buyout offer to investors that it said is the best option to save its proposed Magnolia LNG project in Louisiana.

**Investors sharply sold off shares of Rio Grande LNG developer NextDecade, which is expected file its annual report in the next few days, in favor of more established players.

Metals

**China's copper smelters could start cutting production due to rising sulfuric acid stocks, tight cash flow and slow demand recovery from the coronavirus or COVID-19 outbreak, China Nonferrous Metals News said in a report.

**Smelters are struggling to stockpile sulfuric acid - which is a byproduct of smelting - as their warehouses are full. Hubei province, the region hardest-hit by the coronavirus, is the major sulfuric acid producer and consumer in China.

**In the wake of media reports that China's six provinces and Chongqing municipality have approved key projects over January-February worth Yuan 24.4 trillion ($3,503 billion), the most actively traded May rebar futures contract on the Shanghai Futures rallied this week.

**However, Chinese steel market participants were skeptical as the projects had already been planned before the coronavirus outbreak, and compared with projects approved in the same Chinese regions in 2019, total investment value approved this year was in fact down 3% year on year.

**Chinese steel production has slowed since early February due to weak demand and logistics constraints in receiving raw materials and delivering finished products.