OPEC+ Mulling Virus Impact on Oil Before Meeting

(Bloomberg) -- OPEC and its allies have started reviewing their estimate of the damage to oil demand from the coronavirus, laying the ground for ministers to discuss production cuts at a crucial meeting later this week.

The Organization of Petroleum Exporting Countries and allies face an unprecedented challenge as the epidemic that started in China threatens to become a global pandemic. Growth in fuel consumption could be wiped out this year and prices have just had their biggest weekly drop since the global financial crisis.

To secure a supply cut that could stop the rout, the group must overcome Russian resistance while also grappling with the risks of bringing together delegations from 23 nations as the deadly disease continues to spread. One of those members, Iran, has a serious outbreak at home affecting top government officials.

In an effort to limit potential contagion, OPEC will take the unprecedented step of blocking journalists from entering its Vienna headquarters during the meeting, said delegates.

The OPEC+ Joint Technical Committee gathered in the Austrian capital on Tuesday to reappraise the impact of the epidemic. At their previous meeting in February, they recommended a production cut of 600,000 barrels a day, but the outbreak has worsened since then.

The experts are looking at five scenarios for demand, said one delegate, who asked not to be named because the talks were private. Those numbers will determine whether the previous recommendation for the size of the cut is maintained, said another delegate.

With flights canceled in Europe, schools closed in Japan, towns quarantined in Italy and a rising death toll from Iran to Washington state, the coronavirus crisis has gone global, and with it, its impact on energy demand. For only the fourth time in almost 40 years, oil consumption may not grow at all in 2020, according to a growing minority of traders, investors and analysts.

That possibility is reflected in crude, which slumped 16% in New York last week, the biggest drop since December 2008. The market has rebounded somewhat, but at about $48 a barrel on Tuesday prices remain too low for most of the cartel’s members to balance their budgets.

--With assistance from Nayla Razzouk, Fred Pals and Golnar Motevalli.

To contact the reporters on this story:
Salma El Wardany in Cairo at selwardany@bloomberg.net;
Grant Smith in London at gsmith52@bloomberg.net

To contact the editor responsible for this story:
James Herron at jherron9@bloomberg.net