OPEC+ Considers Cutting 600,000 Barrels Per Day Due to New Coronavirus Impact

[Asia Economy Reporter Naju-seok] Technical experts from the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC member countries including Russia have proposed a production cut of 600,000 barrels per day in response to the novel coronavirus infection (Wuhan pneumonia).

On the 6th (local time), OPEC+, a coalition of 14 OPEC countries and 10 major oil-producing countries including Russia, held a Joint Technical Committee (JTC) meeting in Vienna, Austria, to assess the impact of the novel coronavirus on crude oil demand and formulated this recommendation. This is the first time the technical committee has specified the scale of the production cut.

In December last year, OPEC+ decided to cut an additional 500,000 barrels per day until March this year, totaling a reduction of 1.7 million barrels per day. If the JTC's recommendation is implemented, the total production cut by oil-producing countries will expand to 2.3 million barrels per day.

At the beginning of this year, oil prices rose due to Middle East tensions following the killing of Qasem Soleimani, commander of Iran's Islamic Revolutionary Guard Corps Quds Force, by U.S. forces, and the U.S.-China trade agreement. However, as the novel coronavirus outbreak spread, oil prices fell below $50 per barrel (West Texas Intermediate, WTI) at one point. The novel coronavirus originated in China, the world's largest oil consumer, causing widespread damage to transportation, industrial production, and other sectors. Reports have even emerged that liquefied natural gas (LNG) importers such as China National Offshore Oil Corporation (CNOOC) are considering declaring 'force majeure' due to uncontrollable reasons, which would exempt them from contractual obligations. Market research firm IHS Markit forecasts that LNG demand growth in China and other Asian countries could decrease by up to 38% due to the novel coronavirus.

Following the news of the production cut recommendation, WTI closed at $50.95 per barrel, up 0.4% from the previous day. Brent crude, despite the production cut recommendation, fell 0.6% to $54.93 per barrel.

The mixed oil price response despite the production cut recommendation is because Russia has not expressed a concrete position on the JTC's proposal. Alexander Novak, Russia's Minister of Energy, stated that the impact of the novel coronavirus on the oil market needs to be observed for a longer period.

CNBC reports that OPEC+ may advance its scheduled meeting on March 5 to next week. However, no official announcement regarding the schedule change has been made yet.

Russia's hesitation over the production cut appears to reflect recent U.S. considerations of sanctions against Rosneft, Russia's state-owned oil company. The U.S. Treasury Department believes Rosneft has violated sanctions by assisting Venezuela's oil exports.

Experts analyze that the final decision on the production cut ultimately rests in the hands of Russian President Vladimir Putin.

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