Singapore — Benchmark Dubai crude future spreads continued their downward spiral on the first trading day for February, with OPEC’s call for an urgent meeting of its technical committee on Tuesday and Wednesday doing little to assuage fears of a slowdown in oil demand on the back of the spread of the coronavirus. Crude oil prices are being underpinned slightly by a more positive tone in world markets that have been gripped by worries over the economic fallout from the spread of the coronavirus. The markets opened lower as traders assessed the spread of China’s coronavirus and its potential impact on global economic growth and demand for crude. On Monday, Iranian Oil Minister Bijan Zanganeh said the spread of the coronavirus had hit oil demand and called for an effort to stabilize oil prices. “The oil market is under pressure and (Brent) prices have dropped to under $60 a barrel and efforts must be made to balance it,” Zanganeh said. He said Iran would agree to holding an earlier OPEC meeting if the rest of the group’s members agreed to oil production cuts. OPEC and its allies, a group known as OPEC+, are considering meeting in February instead of March. OPEC and its allies are considering cutting their oil output by a further 500,000 barrels per day (bpd) due to the impact on oil demand from the coronavirus, two OPEC sources and a third industry source familiar with discussions said, and Reuters reported. OPEC+ is considering holding a ministerial meeting on February 14-15, one of the OPEC sources said, earlier than a current schedule for a meeting in March.
Additionally, an OPEC and non-OPEC panel called the Joint Technical Committee (JTC) has scheduled a meeting for February 4-5 in Vienna to assess the impact of the virus on demand, other OPEC+ sources said.
The technical panel is likely to make a recommendation on any further action to support the market, the sources said. The partners are also discussing the duration of the cuts and separate OPEC sources said last week the group wanted to prolong the curbs until at least June. Prices are being underpinned slightly by a more positive tone in world markets that have been gripped by worries over the economic fallout from the spread of the coronavirus. Talk of additional production cuts or an extension of the current cuts has helped slow down the selling. Any positive news from OPEC+ is likely to trigger a short-covering rally, but with the virus spreading and uncertainty over the impact on China’s economy rising, any price rise is likely to be short-lived. OPEC+ will hold a technical meeting on Tuesday and Wednesday to discuss the impact of the deadly coronavirus on oil demand, OPEC sources told S&P Global Platts on Sunday, as oil prices fall due to the outbreak. No specific production cuts have been discussed, just talks over whether to move up the ministerial meeting, one source said.
Some members are “already panicking,” an OPEC source said.
The outbreak is expected to blunt global oil demand by at least 900,000 b/d in February and 650,000 b/d in March, according to S&P Global Platts Analytics. In a worst case scenario involving travel curtailments, demand could drop by up 2.6 million b/d in February and 2 million b/d in March. Flat prices for oil — including those for benchmark Dubai cash and futures — have taken a beating in January due to fears of the virus triggering an economic slowdown in China. The second-month Dubai futures flat price, which was assessed at $63.77/b on January 02, closed the month 11% down at $56.54/b on January 31. Flight cancelations to China, and restrictions on the travel of Chinese citizens to other countries are some of the measures that may impact the Asian behemoth’s economy. Trade-related voyages via air, land and marine routes are also expected to be affected. Several Arab countries are starting to halt their flights to China in an attempt to curb the spread of the virus, with Saudi Arabian Airlines and Qatar Airways issuing notices effective February 2 and 3, respectively. The meeting of the Joint Technical Committee of the 23-member OPEC/non OPEC coalition known as OPEC+ in Vienna will determine whether the full ministerial meeting scheduled for March 5-6 should be moved forward, three OPEC sources said. OPEC+ members are in the midst of cutting 1.7 million b/d, up from 1.2 million last year, as part of a deal reached in December. The new deal is supposed to last until the end of March.