Oil prices have been plunging as coronavirus fears continue to hurt demand for energy commodities. Considering that China is one of the biggest oil consumers in the world, the shutdown of a large part of the nation’s economy is hurting demand, and oil-producing nations are vowing to do something about it. News has come out that some of OPEC’s top advisors are calling for massive supply cuts, as much as 2.7 million barrels per day.
The OPEC’s technical committee just concluded a three-day meeting in Vienna, Austria where they discussed what the group of oil-producing nations should do moving forward. While it was expected that the group would suggest supply cuts to keep oil prices above the $50 per barrel price target, they’ve said to be their minimum price point, the 2.7 million barrel per day cut was much higher than what everyone else expected.
OPEC and OPEC alliance members have already agreed to cut 1.7 million barrels per day for the first three months of 2020 back in December. Saudi Arabia alone promised to cut an extra 400,000 barrels per day in output. However, the technical committee thinks that the group needs to do more to prevent further declines in oil prices, which have already fallen by 20% in January alone.
Russian officials have stated last week that they haven’t come to a decision on whether to implement new cuts, something which could derail the chances of a new deal. President Putin and his contemporary in Saudi Arabia have had discussions recently about this topic, with the Russian leader vowing to help maintain oil prices however he can. While there’s some hesitation about agreeing to another fresh round of supply cuts so soon after the previous one, many experts think that the Kremlin will eventually acquiesce to further restrictions.
“Russia may have to experience some more crude price weakness before it gets to yes,” said Bob McNally, a former adviser to the White House, on the topic. “The market’s rebound this week, and optimistic press reports of a vaccination, seem to have bolstered the Russian position to wait and see.”
While OPEC has stated that they will do their best to make sure oil prices remain above $50 per barrel, some experts are saying that conditions are now set for oil to fall to $40 per barrel, or perhaps even worse. Back in 2016, oil prices ended up falling below $30 per barrel when U.S. shale output began to increase at a time when OPEC refused to reduce its own production to compensate. While OPEC now seems quite “on the ball” when it comes to responding to global economic changes, it’s also possible that the economic effects of the coronavirus could end up being greater than already anticipated by economists.
Prices for international benchmark Brent crude ended Friday down at $54.62, while West Texas Intermediate came in at $50.48 per barrel. As for the coronavirus itself, the total number of confirmed cases has reached 40,500, with 40,185 of them being based in mainland China. While the death toll has climbed to 910, it appears that the rate the epidemic is spreading has been slowing down.
