OPEC and allies to consider major oil output cuts as coronavirus hits demand
OPEC and its allies will consider making substantial oil production cuts to lift prices that have been battered by the coronavirus outbreak, Algeria’s oil minister said on Tuesday, as ministers began arriving for talks in Vienna this week.
The Organization of the Petroleum Exporting Countries and allies including Russia, a group known as OPEC+, have an existing deal in place to cut output from Jan. 1 by 2.1 million barrels per day (bpd), a figure that includes additional voluntary cuts by Saudi Arabia.
But this has not been enough to counter the impact of the virus outbreak on China, the world’s biggest oil importer, and around the world, as factories are disrupted, fewer people travel and other business slows, curbing demand for oil.
The OPEC meeting, however, has been somewhat overshadowed by the coronavirus, with officials having considered whether to talks should be held in person or by video. OPEC said the number of delegates attending the meeting would be limited and journalists, who usually chase ministers, would not be allowed into OPEC headquarters.
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“It will be difficult diplomatically. Ministers shake hands, hug, kiss (on cheeks). What will we do?” one delegate said.
Before this week’s gathering, sources said Saudi Arabia and some others producers had proposed cutting another 1 million bpd of output in the second quarter of 2020 while extending the existing pact beyond its March expiry.
Russia, which has indicated support for an extension, has so far proved reluctant to swing behind the proposal for deeper cuts, even though oil prices have tumbled by 20 percent since the start of the year to about $52 a barrel.
“We will discuss the possibility of a new substantial cut by withdrawing from the market the quantities that are not consumed due to the coronavirus (outbreak),” Algerian oil minister and OPEC President Mohamed Arkab told state news agency APS.
“The trend is towards the continuation of the cuts adopted in December 2019. We already have a consensus between OPEC and non-OPEC, including Russia, on this point.”
OPEC ministers are due to meet on Thursday, while ministers from the wider OPEC+ group meet on Friday.
Under the existing pact, OPEC and its allies agreed at the end of last year to cut 1.7 million bpd from the market while Saudi Arabia, OPEC’s biggest producer, made voluntary additional cuts of 400,000 bpd.
Offering some encouragement to those seeking to persuade Moscow to back further reductions, the vice-president of major Russian oil producer Lukoil, Leonid Fedun, said the proposal to cut up to 1 million bpd would be enough to balance the oil market and lift prices to $60 a barrel.
“We are ready to cut as much as we are told to. Better to sell less oil but at a higher price,” Fedun told Reuters.
Kuwait’s oil minister, who landed in Vienna on Tuesday, said ahead of his arrival that he was upbeat about the outcome of the OPEC meetings despite what he called the “noticeable” impact of the coronavirus on global oil markets over the past month.
“We are optimistic on the expected outcome of the meetings and continued cooperation among the OPEC+ alliance,” Khaled al-Fadhel told KUNA before heading to Vienna.
The International Energy Agency in February said that demand in the first quarter of 2020 was expected to fall by 435,000 bpd from a year earlier in what would be the first quarterly drop since the 2009 financial crisis.
The OPEC+ Joint Technical Committee (JTC) last month recommended an additional 600,000 bpd cut. But some producers increasingly believe that is not enough, prompting the proposals for the deeper 1 million bpd reduction.
The JTC meets again on Tuesday to review market fundamentals, while a ministerial committee convenes on Wednesday at 1130 GMT.