Oil Prices May Fall to $50 per Barrel... 'Oil-Producing Countries Likely to Consider Additional Production Cuts'

[Asia Economy Reporter Naju-seok] As the novel coronavirus infection (Wuhan pneumonia) strikes the world, concerns have emerged that international oil prices could fall below $50 per barrel. Starting from China, the country where the novel coronavirus outbreak began, the global economic recovery is expected to falter, leading to a sharp decline in crude oil demand.

[Image source=Reuters Yonhap News]

On the 31st of last month, March delivery West Texas Intermediate (WTI) crude oil closed at $51.56 on the New York Mercantile Exchange (NYMEX), and March Brent crude oil closed at $58.19 on the London ICE Futures Exchange. Regarding this, CNBC analyzed that these prices represent a 21.4% drop compared to the peak recorded in early January this year.

Initially, oil prices showed an upward trend influenced by the US-China Phase One trade agreement and the rising tensions between the US and Iran following the death of Qasem Soleimani, commander of the Iranian Revolutionary Guard Corps. However, this upward momentum was sharply halted due to the impact of the novel coronavirus.

Robert Rapier of OilPrice.com stated, "Oil prices have already been hit by oversupply and the slowdown in China's economic growth," adding, "The initial prediction that oil prices would not fall below $50 this year will turn out to be wrong." He also noted, "During the previous Severe Acute Respiratory Syndrome (SARS) outbreak, prices fell by about 20%. The shock at that time was not prolonged because the SARS outbreak was brought under control shortly after it occurred. The remaining key issue will be how effectively the novel coronavirus can be contained going forward."

According to Bloomberg News, the novel coronavirus outbreak has reduced China's crude oil consumption by 3 million barrels, equivalent to 20%. This represents the largest demand drop in the oil market since the 2008 financial crisis.

China is currently the world's largest crude oil importer, consuming more than 14 million barrels of crude oil per day on average. China's crude oil consumption surpasses the combined levels of France, Germany, Spain, the United Kingdom, Japan, and South Korea.

Oil-producing countries and others have responded swiftly by holding emergency meetings to discuss the decline in oil prices.

On the 4th, the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC member countries including Russia will hold a two-day Joint Technical Committee meeting in Vienna, Austria. This meeting will discuss the impact of the novel coronavirus on future crude oil demand. Major foreign media outlets reported that the meeting may discuss not only maintaining the current production cut policy until March but also additional production cuts.

There is also speculation that OPEC Plus (+), which includes both OPEC and non-OPEC members, may move up its originally scheduled March meeting to February.

This content was produced with the assistance of AI translation services.