Global economies were signaling a slowdown way before the Coronavirus took hold and plunged the world into unknown economic territory.
And oil prices were affected, if not infected by the virus although the ills were felt before the Wuhan outbreak made itself into a household name.
And now, OPEC’s meeting on Thursday and the wider OPEC+ meeting on Friday aim to put a stop to crashing oil prices, and release the glut floating in open seas without a destination to accept them.
A sickly global economy
Coronavirus (COVID-19) outbreak related uncertainty and downside risks remain, but oil prices staged a rebound at the start of the week, in part from investors buying the dip, but mostly because of emergency action from central banks to cut interest rates in unison and promising oil production cuts noises from OPEC members, as per OilPrice.com.
According to Forbes, despite a more than 5% uptick in prices since market open Monday, oil markets remain depressed amid the Coronavirus. UK Brent ($52.66) and US WTI ($46.76) futures contracts are down nearly 20% since their January high of $70 and $63 respectively.
Reduced travel and growing public concern over respiratory illness are translating into reduced fuel demand, lower manufacturing throughput, and high inventories.
The OECD said that global GDP growth will slow to a best-case scenario of 2.4%, down from 2.9% previously reported. That is, with downside risk related to the coronavirus.
The Virus spread from China to at least 50 countries across the globe, where it has infected some 88,000 people and killed more than 3,000. Consequences of the outbreak have the potential to deliver long-lasting disruption to the global economy
The oil hero?
Global oil demand in the first three months of 2020 is now expected to drop by 435,000 barrels per day compared to a year earlier, according to an International Energy Agency report factoring in the COVID-19 outbreak.
The oil markets are expecting yet again that OPEC will be the hero of oil prices, and this optimism has sent oil prices up 4% on Monday afternoon, and up more than 2% on Tuesday morning.
Russian President Vladimir Putin said over the weekend that Moscow is content with current prices. “Saudi Arabia wants to hold prices from falling, but Russia is still not agreeing. So the only way might be for OPEC to cut alone, which will not send a good signal to the market,” an OPEC source told Reuters. On Tuesday, a Russian oil executive said that a 1 million bpd cut would balance the market but with some rumoring upwards of 1.2 million barrels per day.
OPEC’s oil production fell to 27.84 mb/d in February, down 510,000 bpd from a month earlier. That was also the lowest level of output in 10 years.
Saudi Arabia and some other OPEC members have been pushing for deeper cuts even after a deal in place to cut output from Jan. 1 by 2.1 million bpd.
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.
OPEC’s proposal to cut oil production by up to 1 million barrels a day would be enough to balance the oil market and lift prices to $60 a barrel, Leonid Fedun, vice-president of Russian oil producer Lukoil, told Reuters.
Lukoil is Russia’s second biggest oil producer, pumping nearly 1.8 million bpd.
Oil before Corona
Oil prices have been trending down since late January following the easing of tensions between the US and Iran at the start of the year in the aftermath of Gen. Omar Suleimani’s assassination. Even before COVID-19, a warm winter, large stockpiles, booming US production, and tepid economic growth were already contributing to lower global energy prices.