Abu Dhabi: A new round of production cuts by Opec+ could be in the offering, as the body looks to reverse the downward spiral in global oil prices resulting from China’s coronavirus outbreak, analysts say.
Oil prices were down for the fifth straight week on Friday with Brent trading on $54.47 (Dh200) per barrel and West Texas Intermediate (WTI) at $50.32.
And with the coronavirus outbreak showing no signs of abating, prices are expected to remain under significant pressure, amid weakening demand from China as a result of its lockdown on movement and transportation.
A technical committee for Opec+ last week recommended cutting production by 600,000 barrels per day (bpd), adding to its existing cuts of 1.7 million bpd that are already in place, which would bring its total cuts to 2.3 million bpd if implemented.
With the scale of demand slowdown still an unknown variable, the Russian view may be to err on the side of caution and not risk cutting output should prices stabilise in the $50/bpd-$60/bpd over the coming weeks.
“The proposal is non-binding and only Opec+ ministers can actually agree on the cuts and choose how to allocate and enforce them,” said Edward Bell, commodity analyst at Emirates NBD.
“The overall impact of the cut proposal was muted as Russia gave only an acknowledgement and said they would notify the rest of the producers’ bloc soon if they agreed in principle for further cuts to output,” he added.
“With the scale of demand slowdown still an unknown variable, the Russian view may be to err on the side of caution and not risk cutting output should prices stabilise in the $50/bpd-$60/bpd over the coming weeks,” he said.
Bell said uncertainty regarding the body’s next move would affect oil prices when markets open again for the week.
“The lack of clarity over Opec’s position — including whether to also extend the current cuts — means that markets appear poised to take downside views on oil in the short term until there is greater conviction that Opec producers are ready to endure substantial production cuts to support prices.
“Markets will also be scanning reports out both from Opec and the International Energy Agency later this week for further analysis on how badly China’s demand will be impaired this year,” he added.
Ole Hanson, head of commodity strategy at Saxo Bank, said that with demand from China down by 3 million bpd, oil markets were now largely looking for action from Opec
“Reports … that Chinese demand for crude oil has been cut by more than 3 million bpd has kept prices under pressure and once again the market is looking to the Opec+ group of producers for support.
Saudi Arabia … has shown an interest in yielding further market share in order to support and prevent the price from collapsing any further,” he added.
“Russia has once again shown resistance against cutting production and has promised an answer soon as to whether it will join,” he said.