Russia’s participation is crucial in the fight against impacted demand: File Image/PixaBay
With worrying media reports about the coronavirus spreading quicker than the virus itself, crude prices on Thursday dropped yet again: this time Brent shed $1.14 to settle at $49.99 per barrel, while West Texas Intermediate ended the session down 88 cents to $45.90.
Adding to the consternation of traders were the persistent rumours that Russia is reluctant to go along with the Organization of the Petroleum Exporting Countries‘ (OPEC) agreement, reached Thursday, to slash output by a further 1.5 million barrels per day (bpd) in order to counter the virus’s negative impact on demand.
Bijan Zaganeh, oil minister for Iran, told media on Thursday one day in advance of OPEC’s formal meeting in Vienna that “The amount of oil production cut is not agreed on yet, must be discussed; we will try to find a way to help the oil market stabilize.”
The amount of oil production cut is not agreed on yet
Bijan Zaganeh, oil minister, Iran
Even though OPEC is expected to ratify its agreement on Friday with or without Russia’s participation, analysts are worried that this might be the make or break moment for the cartel with regards to its action against the coronavirus: Herman Wang, Middle East and OPEC managing editor at S&P Global Platts, speculated that “Likely, if Saudi Arabia wants a deal, they’re going to have to do a lot of the heavy-lifting themselves.”
To which Victor Shum, analyst at IHS Markit, countered that “They [the Saudis] need Russian participation, and if Russia doesn’t join, they may say ‘well, let prices take the burden to adjust’.”
For his part, Anton Siluanov, finance minister for the former Soviet Union, said his country is prepared for a possible drop in oil prices should OPEC and its allies fail to reach an agreement over cutting supply; but he did not say what Russia’s position on further cutbacks might be.
As for the latest calculation on the effect the virus will have on demand, Ann-Louise Hittle, vice president at Wood Mackenzie, stated on Thursday that “In our current projection, world oil demand is expected to fall 2.7 million bpd in the first quarter; this is a massive drop, and it shows the scale of the problem OPEC+ faces.”