Page 4 - MEOG Week 06

MEOG Commentary MEOG
Oil prices hit by inability
to come up with plan to
deal with Coronavirus
After last week’s convulsions involving OPEC and its allies’ attempt to find a response to the economic effect of the coronavirus outbreak in China it will be no surprise that the story has run on into a second week.
markets
What:
OPEC has not been able to agree a plan to halt the slide in oil prices.
Why:
Russia has refused to support the proposed production cuts.
What next:
Oil prices are spiralling down and pressure continues to grow for a resolution.
OvEr the past week oil prices have continued to be under pressure from the knock-on effect of the coronavirus outbreak in China. On the back of reports of possible medicinal advance to combat the virus oil prices rose slightly: Brent futures initially rose by $0.77 to $56.05 a barrel and US West Texas Intermediate (WTI) futures rose $0.95 to $51.70 a barrel.
Hopes of a breakthrough have, however, been played down by the World Health Organisation (WHO) and during the past week there has been an increase in the number of people infected to 40,000, more than 900 deaths and large parts of China’s economy have been brought to a standstill.
Despite continuing their talks in vienna for three days, OPEC and russia – through the Joint Technical Committee – were unable to agree on a rescue plan for the price of oil. The committee was tasked with making recommendations to the ministers of OPEDC countries and its delib- erations included a Saudi proposal to cut 800,000 to 1 million barrels of oil per day, which was then compromised to a cut of 600,000 bpd. This cut would be on top of the existing cuts of 1,200,000 bpd announced in 2019 which are now recom- mended to continue to the end of 2020.
russian Energy Minister Alexander Novak however, felt unable to agree to this saying rus- sia needed more time to consider the matter and weigh its impact on the market.
On Friday, Novak said global oil demand might fall by 150,000 to 200,000 bpd this year due to the virus outbreak and other negative fac- tors. That forecast is lower than others. Novak said his estimate was “an insignificant volume, taking into account that the volatility in con- sumption also depends on many factors, such as Libya, Iran, [and] venezuela, where supply is also quite volatile”.
Others have suggested a much bigger impact. BP said a global slowdown was expected to reduce 2020 oil demand growth by 300,000- 500,000 bpd, or up to 0.5 per cent of total demand.
OPEC’s regular meeting is set for March 5, but there had been expectations it could hold an emergency session with russia and other non OPEC allies in mid-February. An earlier meeting is still possible, but there has been no such announcement. Holding a special technical meeting gave hopes that a considered solution could be found, but the “non-decision” suggests that there is no clear way forward.
Saudi Arabia’s oil minister, Abdulaziz bin Salman, wanted to move ahead quickly with a meeting to consider new production cuts, but he has struggled to persuade Moscow, even after his father, King Salman, made a call to President Putin of russia.
The apparent conflict between OPEC and russia has dashed hopes that the group will be
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w w w . N E W S B A S E . c o m Week 06 12•February•2020