Daily Management Review

Coronavirus Fears Impacting Global Oil Markets, Saudi Arabia Seeks To Calm Fears


While global oil markets have reacted strongly to the threat of the spread and impact of the new coronavirus on oil demand, one of the largest oil producers of the world Saudi Arabia has sought to ease the tensions. 
The kingdom issued a caution against the "gloomy expectations" of a fall in demand because of the virus outbreak hitting oil demand.
As of Monday, more than 81 people have died because of the coronavirus outbreak in China while more than 2,700 have been infected. The virus has been confirmed to be transmittable through humans and as such health authorities across the globe have started screening and vetting of passengers arriving from China.
Already, oversupply and slowing demand from China has caused a downward slide in the oil prices.  There can be a drop in global demand by 260,000 barrels a day because of the coronavirus and about two thirds of that drop would be accounted for by a drop in demand for jet fuel, analysts at Goldman Sachs Group said last week.
However, the impact on the oil market because opf the virus outbreak was "primarily driven by psychological factors and extremely negative expectations adopted by some market participants despite its very limited impact on global oil demand", said Saudi Energy Minister Prince Abdulaziz bin Salman.
"Such extreme pessimism occurred back in 2003 during the SARS outbreak, though it did not cause a significant reduction in oil demand," the minister said in a statement.
The view point of Saudi Arabia was also towed by United Arab Emirates, another large oil producer in the Gulf region and member of the oil cartel Organization of the Petroleum Exporting Countries (OPEC).
"It is important that we do not exaggerate projections related to future decreases in oil demand due to events in China," UAE Minister of Energy Suhail al-Mazrouei said. He added that in March "OPEC and OPEC+ member countries will discuss market conditions and, if required, all options to ensure continued market balance."
Any impact on the oil market, could be met adequately by the OPEC, said the Saudi minister. The virus would be contained by the Chinese and international authorities, he added.
It was quite possible to manage any situation by the OPEC and the other producers who are known as OPEC+ because they "have the capability and flexibility needed to respond to any developments", Prince Abdulaziz said.
The stance of Saudi Arabia of being ready to address any impact that the virus could have on the global oil market was also supported by the Oman, the country’s oil minister told Reuters news agency on Monday.
Oil production and supply has been agreed to be curtailed by OPEC+, which includes Russia, and the group has decided to reduce 1.7 million barrels per day (bpd) of output till the end of March.
 The OPEC+ has reportedly discussed the possibility of extending the production and supply cuts even after March if the situation demanded and if there was an impact on the oil demand due to the coronavirus in China.