Daily Management Review

OPEC to discuss response to falling oil prices


A series of meetings on the fate of the OPEC + deal amid a slowdown in world oil demand due to the outbreak of coronavirus and a rapid drop in prices will begin on Wednesday in Vienna. The alliance will have to determine whether to respond to this challenge by strengthening production cuts and, if so, which exactly volume will be sufficient to stabilize the situation.

Barta IV via flickr
Barta IV via flickr
The ministerial monitoring OPEC + will be the first to convene. It will give a recommendation on the parameters of the Vienna deal. Then, on March 5, the results of their meeting will be analyzed by OPEC countries, and only on March 6 at a meeting of all OPEC + states a consolidated decision will be made.

But there is also an unusual moment in the usual format: because of the coronavirus, the alliance decided to limit the number of delegates to meetings and to restrict access of journalists to OPEC headquarters, where ministerial discussions are held. This was announced just the day before.

Moreover, on Tuesday, consultations were held by the technical committee of OPEC + experts. According to media reports, they recommended the alliance to consider an increase in production decline of 0.6 to 1 million barrels per day for the second quarter. At the moment, the deal, in which 24 OPEC and non-OPEC countries are involved, implies a decrease in production by 1.7 million barrels per day from March 2018 to the end of the first quarter.

Many enterprises in China, the second largest oil consumer in the world and the largest importer of this raw material, have suspended or limited production due to the coronavirus outbreak. At the same time, the situation hit tourism, air transportation and other areas, which, together, began to affect the demand for energy and the Chinese economy as a whole.

Against this background, OPEC + made proposals for an emergency meeting of the alliance. According to unofficial data, the main initiative came from Saudi Arabia, whose budget is very sensitive to the level of oil prices. As a result, at the beginning of February, OPEC + experts recommended that the agreement be extended until the end of the year with an increase in the reduction in the second quarter. According to their assessment at that time, coronavirus reduced demand growth in 2020 by 150-200 thousand barrels per day.

source: reuters.com