Update (1145ET): Earlier this morning, The Wall Street Journal reported that Russia opposed the Saudi plan to deepen OPEC+ cuts by 1.2mm b/d. Notably, oil prices did not react to the headlines, but now that Russian Energy Minister Alexander Novak has left the OPEC+ JMMC meeting - after proposing that OPEC+ maintain its current output cuts through the end of the second quarter - oil prices have started to tumble.
WTI is back below $47 after topping $48.50 earlier.
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As we detailed earlier, Brent crude futures were up 75 cents, or 1.45%, at 52.61 a barrel at 0700ET Wednesday after a three-day move of +10%, following expectations that major oil producers could make significant production cuts at the OPEC meeting on March 5.
“This is a sudden, instant demand shock,” said Jim Burkhard, vice president and head of oil markets at IHS Markit Ltd.
“The scale of the decline is unprecedented.”
OPEC+ Joint Ministerial Monitoring Committee, the body that oversees production, will meet on Wednesday, ahead of the formal meeting, to discuss cuts. Saudi Arabia is urging OPEC+ to come to an agreeance ahead of Thursday for a reduction of 1 million barrels per day to compensate for lost demand seen by the virus crisis, Bloomberg notes.
"The recommended 600,000-barrel-a-day additional cut for the second quarter of 2020 will be seen as too little," Mohammad Darwazah of consultant Medley Global Advisors said in a note. "It is clear that the group is mulling a deeper production pullback."
The push for deep cuts comes as crude had its worst weekly decline since the 2008 financial crisis on mounting macroeconomic headwinds developing because of the virus spread, which forced Saudi Arabia to demand Russia jump on board with production cuts.
"With demand-side uncertainties having already dragged Brent futures about 19 percent lower since the start of the year ... oil's upside appears significantly capped amid persistent concerns over the coronavirus outbreak," said Han Tan, market analyst at FXTM.
Ahead of tomorrow's big meeting, Saudi Arabia and other OPEC members will spend most of Wednesday persuading Russia to join with output cuts to prop up prices.
Iranian Oil Minister Bijan Namdar Zanganeh told reporters on Wednesday that Russia will decide on production cuts at the very last minute.
A significant output cut by OPEC on Thursday could help to normalize oil demand and inventories in the second half of the year. Still, the global slowdown that started several years ago, has left the oil industry saturated with large stockpiles.