Opec weighing response to oil price plunge

LONDON • The Opec club of oil-producing countries meets tomorrow in Vienna, Austria, as it weighs how to react to a sharp drop in global oil demand due to the coronavirus outbreak.

The extraordinary two-day meeting will see the Organisation of Petroleum Exporting Countries (Opec), led by Saudi Arabia, and its allies in the so-called Opec+ group - foremost among them Russia - discuss how to halt the sharp fall in oil prices in the past two months as the epidemic spread.

At their last meeting in December, the producers agreed to cut production by 500,000 barrels a day, with Saudi Arabia offering a further 400,000 barrels of "voluntary" cuts. Prices were already under pressure at that point from abundant reserves and weak global growth.

The cuts announced then initially had the desired effect of an uptick in prices, but the epidemic has since sent them plunging again.

Two benchmarks for oil prices, Brent in Europe and West Texas Intermediate (WTI) in the US, have fallen around 30 per cent since early January and have tested their lowest levels for more than a year.

Oil prices bounced back further yesterday after a jump of more than 4 per cent on Monday, on hopes of a deeper Opec output cut and central banks' policy measures. In Asian trade, Brent crude was up 2.5 per cent at US$53.17 a barrel and WTI was 2.7 per cent higher at US$48.01.

Opec's "joint technical committee" met last month and recommended a cut of 600,000 barrels to ward off the effects of the coronavirus slowdown.

The success of this week's summit, which is being held three months ahead of Opec's next scheduled meeting, will hinge on the alliance between Saudi Arabia and Russia, which has been much in evidence at previous meetings.

The International Energy Agency has revised down its forecast for demand for oil this year due to the effects of the virus, estimating it at 825,000 barrels a day, the lowest level since 2011.

Producers outside Opec are helping to keep supply plentiful, chief among them the US, followed by Brazil, Norway and even Guyana.

Another production cut would boost prices but would further diminish Opec's market share, while a more conservative cut might fail to register on the markets.

Mr Robert Yawger of Mizuho Securities said he was expecting a cut of around a million barrels a day. But even that "will probably be enough to support the market (only) a little bit, maybe for a day or so", he added.

AGENCE FRANCE-PRESSE