Page 5 - MEOG Week 05

MEOG Commentary MEOG
the end of 2020. And last but not least, a sharp drop in US drilling activity throughout the lat- ter part of 2019 is likely to slow output from the shale patch.
But the coronavirus outbreak in China has overwhelmed all of those bullish factors. With the seasonal winter weakness in demand also in mind, OPEC is considering moving its March meeting forward as the effects of the deadly coronavirus continue to exert strong downward pressure on oil prices, signalling that the oil car- tel may be more concerned about the e ects on the oil market than it had originally let on.
Saudi Arabia had been quoted as having been prompted to push for an emergency meeting of OPEC+ in February, but that was being resisted by Russia and last week there was still confusion about such a meeting. Saudi Arabia and the UAE also tried to downplay what was referred to as a “market over-reaction” to the possibility that the virus could dent oil demand in the world’s largest oil importer, China.
“It is important that we do not exaggerate projections related to future decreases in oil demand due to events in China, and the market does not over-react based on psychological fac- tors, driven by some traders in the market,” the UAE’s energy minister Suhail al-Mazrouei said last week.
Impact on prices
As headlines have laid bare, the spread of the Wuhan coronavirus took global oil prices down to $57.06 a barrel in trading on January 30; then down to $55.66 on February 3.
is steep climb-down, from a high of $68.9 a barrel on January 6, demonstrates how demand- side considerations in Asia and particularly China – and the threat of a potential pandemic
in the region – have risen to the fore. According to GlobalData, “repeated inci-
dents over the past 12 months have caused only brief spikes in the oil price, with little lasting impact. Despite the geopolitical situation, prices have remained depressed on the back of under- lying assumptions about supply and demand. By historic standards, oil prices have stayed low despite the Middle East’s heightened tensions, which have brought the region the closest to openmilitarycon ictthissideofadecade.”
China’s central bank injected more than 150bn yuan ($22bn) of liquidity into money markets on Monday and will make more cash available throughout the week. e China Secu- rities Regulatory Commission said it was on high alert for abnormal reaction on Monday, before markets reopened.
When these markets reopened on February 3 the benchmark Shanghai Composite Index fell 7.7% (losing $375bn), its steepest one-day decline since August 2015, and the Shenzhen Composite dropped 8.4%.
In response to the growing sense of alarm, Saudi Arabia is now pushing for a major, short- term oil production cut as it seeks to respond to the impact of the virus on crude demand, according to OPEC o cials.
OPEC and non-OPEC’s Joint Technical Committee (JTC) agreed to meet on February 4 and 5 to debate possible action a er the outbreak in China, the world’s largest oil consumer, led to the biggest monthly crude price drop in 30 years.
Under one scenario, Saudi Arabia, would lead a collective reduction of 500,000 bpd that would stand until the crisis was over, cartel o cials said. Another option being considered would involve a temporary cut of 1mn bpd by the Saudis to jolt oil markets, the o cials said.
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