Officials from OPEC and its allies, led by Saudi Arabia and Russia, will reconvene in Vienna Wednesday, with the market awaiting clues on how the group will respond to the coronavirus-triggered shock to oil prices.
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Delegates on a technical committee emerged from five hours of discussions Tuesday with no recommendation as yet for the producer coalition known as OPEC+ to immediately implement deeper output cuts, as Saudi Arabia and other members have urged.
Analysis by the OPEC secretariat presented to the committee estimates a likely demand fall of between 200,000-400,000 b/d for the year — roughly a 2%-4% contraction in global consumption — due to the spread of the infection, which originated in China, a key market for many oil producers.
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.
The committee, which provides guidance to OPEC+ ministers, is set to gather again at 10 am local time (0900 GMT) to determine a course of action. Officials have suggested that if a consensus can be reached on production cuts, the previously scheduled ministerial meeting on March 5-6 may be moved forward, perhaps to next week.
Russia, among other members, was yet to be convinced of the need for a sooner meeting as the committee began its talks, according to several sources.
Still, many analysts expect the bloc to coalesce around an additional temporary cut of 500,000-1 million b/d or more. Any new output policy would need to be ratified unanimously by the 23 ministers in the coalition.
"It's all a work in progress," a delegate told S&P Global Platts of the committee negotiations.
Front-month ICE Brent futures were trading at $54.48/b at 0647 GMT, up 0.96% from Wednesday's close.
The OPEC+ coalition is already in the midst of a 1.7 million b/d production cut accord that began in January and expires at the end of March, aimed at preventing what several forecasters had predicted would be an oil supply glut in the first quarter of the year.
But the global spread of the coronavirus has spooked the market further, 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.
Dated Brent has fallen roughly 17% since January 20 to be assessed by Platts at $53.60/b Tuesday, and the price rout had one OPEC+ official, who spoke on condition of anonymity, saying before the committee meeting that many members were "already panicking."
Crude produced by the OPEC+ coalition — which includes OPEC, Russia and nine other allies and pumps about half of global oil supply — is very exposed to the coronavirus outbreak, with China buying more than 70% of its supplies from the group. China is the world's second largest economy and the biggest importer of crude.
Jet fuel demand has also taken a hit, with several airlines suspending flights to and from China, and several Chinese refiners have accordingly slashed their run rates.