Promise Of OPEC Cuts Sustains Prices

(Global) Long-term Impacts Uncertain

Against the background of the ongoing coronavirus threat, oil industry experts await the outcome of a crucial OPEC meeting this week, which promises to offer further production cuts to safeguard prices.

While oil prices are down since the start of the outbreak in December, the long-term impact remains relatively contained as investors still remain positive that projects requiring breakbulk activity will stay on track despite disruptions.

“Besides a general brightening of sentiment on the markets on the back of hopes of rate cuts by central banks and economic stimulus measures on the part of governments, the expectations of deeper OPEC+ production cuts are lending buoyancy to prices,” analysts at Commerzbank state.

Russia Hesitates on Cuts

Ahead of a the 178th (Extraordinary) Meeting of the OPEC Conference on the March 5 in Austria, Russia has refused to confirm if it will match any production cuts via its role in the expanded OPEC+ group of oil-producing nations.

The price of OPEC basket of 14 crudes is about US$50, down around 25 percent compared with December, but up from lows of US$44 in late February.

“The surge in oil prices today is driven by hopes that the OPEC alliance will deepen output cuts. Hopes in the financial markets are now that the world’s central banks could spur some relief in the economies with economic stimulus,” said Michael Poulsen, an analyst at Global Risk Management.

Project Delays

With a global economic slowdown now predicted for 2020 as a result of the massive shutdown in China, many in the breakbulk sector are eyeing the impact of oil price cuts on upstream oil and gas projects, a major driver of demand.

“The epidemic will give producers and oilfield supply chain participants pause for thought … If ongoing virus containment efforts prove unsuccessful, production operations at more producing assets in Southeast Asia and beyond could be directly affected. Project delays would get longer, and further component inventory tightening would have knock-on cost effects globally,” said Fraser McKay, Head of Upstream Analysis at research consultancy Wood Mackenzie.

Headquartered in Edinburgh, Scotland, Wood Mackenzie is a subsidiary of Verisk Analytics, a global data analytics and risk assessment group.