London — The coronavirus in China is making it difficult to forecast the trajectory of the global economy, OPEC said Wednesday, even as it continues to lobby Russia to sign off on a deal to cut oil production.
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For now, OPEC has shaved about 230,000 b/d from its 2020 world oil demand forecast due to the virus outbreak, which has caused a slowdown in Chinese economic activity and suspensions of hundreds of flights, as the death toll continues to rise.
The estimate, contained in OPEC's latest monthly oil market report released Wednesday, indicates that OPEC will have to rein in some 570,000 b/d – or about 2% -- of its production during the second quarter from its January output, if it wants to prevent an oversupply.
That could be difficult if war-battered Libya sees a blockade on its oil ports lifted or if OPEC and its allies, including Russia, fail to agree on a deal to deepen their production cuts soon.
OPEC and 10 countries, in a 23-member alliance called OPEC+, have largely backed a technical committee recommendation to institute 600,000 b/d in fresh production cuts, with the principal exception of Russia, which says it is still studying the proposal.
"The impact of the coronavirus outbreak on China's economy has added to the uncertainties surrounding global economic growth in 2020, and by extension global oil demand growth in 2020," OPEC said in the report. "Clearly, the ongoing developments in China require continuous monitoring and assessment to gage the implications on the oil market in 2020."
Russian energy minister, Alexander Novak, is meeting with the heads of domestic oil companies Wednesday, and OPEC officials say they are hopeful of receiving an indication of whether the country will approve the deal.
OPEC+ ministers are next scheduled to gather March 5-6 in Vienna, though delegates have said the meeting could be moved forward to immediately implement the new cuts if there is a consensus to do so.
In its report, OPEC projected that global oil consumption in 2020 will average 100.73 million b/d. That is a 990,000 b/d rise from 2019, which is down from January's growth forecast of 1.22 million b/d.
"The coronavirus outbreak is expected to mainly impact the Asian jet fuel and gasoline markets due to the suspension of flights and select road transportation services in China," OPEC said. "However, the full extent of the coronavirus impact on product markets should be more evident in the coming months."
The demand write-down outpaces OPEC's downward revision of its non-OPEC supply forecast, which is expected to average 66.60 million b/d in 2020, up 2.25 million b/d from 2019. January's report had forecast growth of 2.35 million b/d.
OPEC said it expects a significant slowdown in US production growth, which it revised down by 166,000 b/d from last month's estimate, due to "independent shale oil companies facing financial challenges and a slowdown in drilling and well completion." US output is now forecast to grow 1.26 million b/d year on year.
OPEC as a whole produced 28.86 million b/d in January, a fall of 510,000 b/d from December, according to an average of the six secondary sources used by the organization to track output.
Libya was responsible for the bulk of the fall, with its production contracting by 344,000 b/d, due to a blockade on its oil ports imposed by opposition militias.