OPEC Leaning towards Larger Oil Cuts As Virus Hits Prices, Demand - Sources

Some major OPEC members are moving towards a greater cut in oil output than previously expected, four well-informed sources said, as oil prices fell to $50 a barrel, predicting that the coronavirus epidemic would have a severe impact on oil demand.

Saudi Arabia, the largest producer in OPEC, and some other leaders are contemplating negotiating a reduction in the production of 1 million barrels per day (bpd) for the second quarter of 2020, more than the originally planned drop of 600,000 bpd, according to the reports.

The Financial Times newspaper was first to report the deeper cut idea.

The virus has caused almost 2,800 deaths in China and has spread to dozens of other countries.

Oil LOCc1 has declined by nearly 25% this year due to lower demand and slower expected economic growth, alarming OPEC members.

The Organization of Petroleum Exporting Countries and its partners, including Russia, a group known as OPEC+, have already reduced oil output by 1.7 million bpd under an arrangement that lasts until the end of March.

They are scheduled to meet on March 5-6 in Vienna to decide further policy.

In an initial response to the effect of the virus on the oil market, the OPEC+ Committee proposed this month that the organization expands its production reductions by 600,000 bpd, a number that some in the community now see as insufficient.

One source familiar with the talks said the kingdom now supported an oil output cut of 1 million bpd. Two other OPEC sources said the need for additional action was clearer than when the OPEC+ committee recommendation was made.

"The situation has deteriorated," said an industry source who has discussed the issue with some producers. "There is a lot of concern."

Saudi Arabia is already making unilateral curbs of more 500,000 bpd in crude supplies to China for March, two sources with knowledge of the matter said. State oil company Saudi Aramco declined to comment.

The OPEC+ group, which proposed a reduction of 600,000 bpd, called the Joint Technical Committee, is scheduled to meet again on 3 March, with two sources stating that they would update the decision in the light of more recent data on the oil market.

Although Saudi Arabia is promoting more reductions in production, Russia has yet to declare its final position on the matter. Moscow has a tradition of only agreeing to take OPEC+ steps at the last minute, despite initial resistance.

Russian Energy Minister Alexander Novak said on Thursday that Russia was "very satisfied" with its cooperation with Saudi Arabia and wanted to continue this within OPEC and non-OPEC frameworks, as well as bilaterally.

A source in a Russian oil company said it made sense to deepen the cuts.

Source: Reuters