A technical committee meeting of the Organization of the Petroleum Exporting Countries (OPEC) and its allies is recommending a provisional cut in oil production to buoy prices as the spread of the coronavirus saps oil demand. But Russia has not yet given its final position on the plan, two sources tell Reuters News Agency.
The Joint Technical Committee (JTC) is not a decision-making body, but it is advising OPEC and its allies led by Russia – a grouping known as OPEC+ – to cut oil production by 600,000 barrels per day (bpd) in response to the coronavirus outbreak.
OPEC+ ministers have not decided on further action, but the recommendation on Thursday by all the members of the JTC, which includes Saudi Arabia and Russia, would signal progress towards a unified response.
“The recommendation is for a cut of 600,000 bpd. Russia has asked for more time for consultations,” one of the sources said.
Despite efforts to diversify its economy, Saudi Arabia remains heavily dependent on fossil fuel revenues and needs prices of around $80 per barrel to balance its state budget. Russia needs much lower prices of around $42.
Estimates of how deeply the coronavirus could impact oil demand vary widely. China is the world’s largest oil producer and the epicentre of the outbreak.
The JTC panel extended its meeting into a third day on Thursday after Russia voiced its opposition to a deeper supply cut and was instead suggesting an extension of current cuts of 1.7 million bpd that were agreed in December and are set to last through March.
Sources said OPEC+ is considering making its planned policy meeting earlier, moving it to February from March 5-6, but the group is unlikely to do that unless there is general agreement on the need to reduce output further.
Russia routinely signals opposition to OPEC before ultimately agreeing to a unified policy during formal meetings.
Despite news of potential action from OPEC+, oil futures gave up early gains on Thursday.
OPEC members including Saudi Arabia, OPEC’s de facto leader, are worried that the continued spread of the virus could hit oil demand and prices further, the sources said.
While OPEC countries such as Iraq, OPEC’s second-largest producer, have voiced support for any agreement that would stabilise the market, Russian Minister of Energy Alexander Novak said on Tuesday that he could not say for sure whether it was time to tighten output further.
In the past two days, commodities, equities and other markets have been buoyed by unconfirmed reports of a possible advance in producing drugs to counter the coronavirus, which has shut down transport and limited industrial activity in China.
However, the World Health Organization has played down the reports of “breakthrough” drugs being discovered.
A further 73 people on the Chinese mainland died from the virus on Wednesday, the highest daily increase since the outbreak started, while 3,694 new cases raised the total to 28,018.
Commodity supply chains in China have been disrupted to the extent that short-term sales of crude oil, along with liquefied natural gas, fell to nearly zero this week.