While global stocks continue to falter as a result of the ongoing coronavirus epidemic, oil prices have gained in Monday trading.
By mid-afternoon Brent crude oil futures stand at $50.17 per barrel, up 1.01 per cent, while West Texas Intermediate crude oil futures has gained 1.39 per cent to stand at $45.38.
Such gains have been fuelled in large by chatter ahead of the Organisation of the Petroleum Exporting Countries’ (OPEC) upcoming meeting in Vienna. Two unnamed sources have suggested to Reuters that the consortium could go along with further cuts to oil output without the support of its ally Russia.
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As the second-largest oil exporter in the world Russia has often coordinated its production with OPEC, which includes the likes of Iran, Saudi Arabia and Iraq.
Saudi Arabia is seen as the driving force behind the push for further output restrictions. The country’s energy minister Prince Abdulaziz bin Salman initially dismissed the “extremely negative expectations adopted by some market participants” when the coronavirus sprung onto the scene.
However, as cases of infections spread beyond China, to Iran, South Korea, Italy and now the United States such negative expectations have been vindicated. The widespread quarantines have upset global supply chains and reduced demand for oil.
With Brent crude and WTI crude down 23.91 per cent and 25.81 per cent respectively in 2020, Saudi officials are expected to push for significant cuts to oil production. The Saudi state needs an oil price of around $80 per barrel to balance its budget. With some analysts predicting falls to as low as $30, this target seems a long way off.
The kingdom is consequently expected to push OPEC and its allies to agree to cut production by an additional 1 million barrels a day. However, with demand from China for Saudi oil expected to fall by a third in March, such a significant cut could itself prove insufficient.
The IPO of Saudi Aramco, the Saudi state-backed oil and gas behemoth, at the end of 2019 was helped in part by restrictions agreed upon by OPEC and its allies. Following the listing and before the coronavirus outbreak Russia had already expressed its desire to ease the existing restrictions.
As Russia requires an oil price of around $42 per barrel to balance its books it is less inclined to undertake further drastic measures.
Russian new agencies reported on Sunday that the country’s president Vladimir Putin had described the current oil prices as acceptable, an indication that the meeting in Vienna later this week could prove contentious.