After deliberations, Russia appears set to support Saudi Arabia in the push for deeper production cuts.
OPEC’s Joint Technical Committee met on Tuesday, and it was only supposed to be a two-day affair. The expectation was that the JTC would conclude that the oil market was oversupplied and that OPEC+ should cut more. But Russia was unconvinced and asked for more time. The talks stretched on, and the prospect of the negotiations ending with no result sent oil prices down towards the end of the week.
But Russia’s top diplomat ended the week by voicing support for more production cuts. The leading idea is another 600,000 bpd in cuts, which come a little more than a month after OPEC+ introduced the last round of cuts following the December meeting in Vienna.
The problem that some analysts have raised is that while the demand hit from the coronavirus is really deep, but it may only be temporary. China’s oil consumption, by some estimates, is off by a massive 3 million barrels per day (mb/d). That’s a huge hole in the market that, on its face, almost certainly would force OPEC+ to act. But if the virus is contained, demand could return quickly. By the time OPEC+’s new cuts are phased in, China could be back to normal.
Still, with Brent down below $55 in recent days, OPEC+ (and especially Saudi Arabia) feels that they need to take action. In a worrying sign for the market, Russia’s support for more cuts did little for crude prices on Friday.
The longer-than-expected deliberations in Vienna may delay the ministerial meeting that would finalize the reductions. Prior to the JTC meeting, the rumor was that the full forum would convene as early as next week. At the time of this writing, nothing had been scheduled yet.