Worst Oil Week Since 2011 Puts Pressure on OPEC+

(Bloomberg) -- Oil was on course for its biggest weekly loss since 2011 as the fast-spreading coronavirus roiled global markets, intensifying speculation that OPEC and its allies will strike a deal to support prices.

Futures in New York fell a sixth day after fears over the outbreak sent shares on Wall Street down by the most in almost a decade. With crude prices down more than 14% this week, there are signs that OPEC and its allies could be nearing agreement on action to stem the rout before meeting in Vienna next week.

The group’s top official said the cartel and its allies are displaying a “renewed commitment” to reach an accord as the virus puts the world economy on course for its worst performance since 2009. Saudi Arabia has been pushing for deeper production cuts over the last few weeks, but Russia has so far taken a more cautious stance. One silver lining for markets is that prices are now at a level that may be uneconomic for U.S. shale producers.

“Whatever production cuts that might be forthcoming next week are too little too late, given how oil prices have declined so rapidly,” said Howie Lee, an economist at Oversea-Chinese Banking Corp. in Singapore. “If OPEC+ cuts by 1 million barrels, that can shore up prices a little, but anything less is going to disappoint.”

West Texas Intermediate futures for April delivery fell 3% to $45.68 a barrel on the New York Mercantile Exchange as of 7:30 a.m. in London. They closed down 3.4% on Thursday and have lost 14.4% so far this week, the most since May 2011.

Brent for April settlement dropped 2.7% to $50.75 a barrel on the ICE Futures Europe exchange after falling 2.3% on Thursday. It’s down more than 13% for the week. The global crude benchmark traded at a $5.07 premium to WTI.

The OPEC+ talks are scheduled for March 5-6 after Russia, whose budget is more resilient to lower oil prices, rebuffed pressure from Saudi Arabia for an earlier emergency meeting to deal with the outbreak. Combined OPEC output, not including Russia and other allied producers, is already at the lowest level since 2009.

The kingdom is now pushing for collective OPEC+ production cuts of an additional 1 million barrels a day, which it would bear the brunt of, according to a report in the Financial Times. That’s more than the 600,000 barrels per day of reductions that were recommended earlier this month by an OPEC+ technical panel.

Oil market drivers

The Trump administration is ready to unleash the full impact of sanctions on Chevron Corp.’s operations in Venezuela as the U.S. seeks to further squeeze the Maduro regime Russia’s average oil production so far this month fell for the first time since October as the nation prepares for OPEC+ talks in Vienna that may result in deeper output cuts for the group Asian oil refiners outside of China are reeling as the rapid spread of the coronavirus coincides with a warmer-than-normal winter. Crude futures fell 4.1% to 353.5 yuan a barrel on the Shanghai International Energy Exchange, taking the weekly decline to around 15%.

--With assistance from James Thornhill.

To contact the reporter on this story:
Ann Koh in Singapore at akoh15@bloomberg.net

To contact the editors responsible for this story:
Serene Cheong at scheong20@bloomberg.net
Andrew Janes, Dan Murtaugh