Coming Weeks Critical For OPEC As Global Price Oil Crash Further
…Coronavirus in China may trigger further oil cut
Uncertainty is hanging on the Organisation of Oil Exporting Countries (OPEC). Experts say the next two weeks will prove critical for the global oil body with the suspicion that the outbreak of the dreaded Coronavirus in China may force OPEC to push for further cut in oil production to limit it impact as oil price slides to $58
This is despite an upward revision in oil demand growth for 2020 by 140,000 b/d to 1.22 million b/d. This is also coming on the backdrop of the lingering fall in the price of gas, which adversely affected the price of liquefied natural gas (LNG) in the main markets.
According to Agence Ecofin, in the new market reports, the price of LNG in Asia has dropped below $ 4 / MMBtu, which is 40% lower than the same period last year. In Western Europe, the price has dropped by 50% and it is currently trading at around $ 3.50 / MMBTU.
Nigeria’s new 2020 OPEC quota is 89,000bpd higher than before (1.774mbpd now versus 1.685mbpd before), below its benchmark of 2.18 million barrels per day (bpd) at a price of $57 per barrel. Brent traded at 2.37% lower at $58.47 per barrel as at Monday evening.
“The next two weeks are very critical for not only the oil market but the global economy,” an undisclosed OPEC source was quoted yesterday. “There is right now discussion among the ministers of OPEC+ of watching the market closely and preparing to do anything if there is a need for it.”
The remarks followed a statement on Monday from Saudi Arabia’s oil minister, Prince Abdulaziz bin Salman, aimed at calming the market after crude dropped below $59/b amid fears of a wider economic impact of the virus, which has killed at least 80 people in China and shut down the country.
He said the kingdom has “the capability and flexibility needed to respond to any developments, by taking the necessary actions to support oil market stability, if the situation so requires”.
According to his statement quoted by the Saudi Press Agency, the kingdom “is closely monitoring the developments in the global oil market resulting from the gloomy expectations about the impact of the coronavirus outbreak on the Chinese and the global economy and oil market fundamentals”.
In addition, the weather conditions, which are rather mild in Asia, Europe and the United States, led to weak demand. The putting into production in recent months of new LNG production terminals does not help either, because large stocks have been built up in the meantime.
As a result, the main markets are expected to come out of the winter season with more inventory than the industry could have expected. This has made some analysts to believe that the price of LNG could slide below $ 3 sooner than later
Nigeria is among the African countries where, in the short term, things may likely get more complicated. Others are Mozambique, Senegal and Mauritania. As countries who rely heavily on the gas windfall, the risk of disappointed will be high if demand does not pick up quickly and the current situation continues.
But there could be an imminent solution to save the price of LNG. According to Goldman Sachs, if the mild weather or stronger than expected LNG deliveries, particularly in north-western Europe, continue to the point of adding an additional 2 billion cubic meters to storage, the market should seek leverage.
China is world’s second-largest economy. It imports an average 10.16 million b/d of crude in 2019, according to official data. Chinese authorities have continued to lock down cities to contain the virus, which has spread and reached countries including the US and Canada. S&P Global Platts Analytics said last weekend that for now China’s demand outlook is under negative watch, which means it will almost certainly be adjusted down in the coming weeks.