Half of China's economy - the second largest in the world - is expected to be offline through at least mid-February. Traders started pricing in the impact on oil demand weeks ago. And now that it's become clear to everybody that this problem isn't going away any time soon, and after oil prices recorded their largest monthly drop in 30 years, OPEC might step in to 're-balance' the global energy market.
Confirming earlier whispers, Saudi Arabia is reportedly pushing for a major, short-term oil production cut, WSJ reported Monday morning, citing anonymous OPEC officials.
A group of OPEC countries and their allies - collectively known as OPEC+ - are planning to meet Tuesday and Wednesday to debate possible action thanks to the outbreak in China, the world’s largest oil importer and consumer.
One scenario being discussed is that Saudi Arabia, OPEC’s kingpin, would lead a collective reduction of 500,000 barrels a day. The production cut will remain in place until the outbreak has subsided, cartel officials said.
Another, more drastic, option being considered would involve a temporary cut of 1 million b/d, a cut that would deliver a decisive 'jolt' to the market (and potentially trigger another flurry of angry Trump tweets about oil prices - the 'invisible tax' - being too high.
According to WSJ, the cartel is still split on what to do. Plans to schedule a full meeting of the cartel and its Russia-led allies were scrapped in favor of a smaller meeting to discuss the impact of the virus outbreak on global demand.
OPEC and its allies are split over how to manage oil supply in the face of the deadly coronavirus, which has already eroded demand in China. Collective responses by oil producers tend to be more efficient in supporting crude prices, which have lost 15% in the past month.
Despite the Saudi prodding, the cartel and 10 allied nations led by Russia stopped short of scheduling an emergency meeting of its full delegation this week and will instead hold a technical meeting to access the virus’s impact and make recommendations to members.
Producers would then decide if they hold a small gathering led by Saudi Arabia and Russia - called a Joint Ministerial Monitoring Committee - or a summit of all 23 producers in Vienna, the officials said.
Oil prices ticked higher on the report. If the cuts are confirmed, we suspect the rebound will be even more pronounced.