OPEC is considering whether to make further production cuts in response to the coronavirus. Measure deemed necessary to stem the new drop in prices, partly caused by transport restrictions in Asia
Opec and its allies are considering further cuts in production as a response to the coronavirus that is weighing on crude oil prices, which today fell to 3-month lows, below $60 a barrel. Opec Plus, which has cut production since 2016, is expected to meet in Vienna in early March.
The producing countries are analyzing options to stem the new drop in prices that has seen Brent crude oil drop almost 17% since it hit $70 a barrel in early January.
One of the options on the table is the extension of the current agreement, reached in early December, to the end of the year. But Opec Plus is also considering bigger cuts. Oil is particularly suffering the impact of the coronavirus due to transport restrictions in Asia, which is at the heart of global crude oil demand growth.
Goldman Sachs’ forecast
This is how the US investment bank Goldman Sachs predicted that the potential impact of Chinese ‘pneumonia’ on oil prices could be $3, according to a report released by its analysts on 22 January.
The epidemic, which started in the Chinese city of Wuhan, has spread to the rest of the country, causing so far eighty deaths from the coronavirus pneumonia epidemic in China, which has 2,744 confirmed cases, according to the latest bulletin issued to the Chinese National Health Commission.
The transmission of the virus, and its rapid spread, is worrying about the financial markets, because it reminds investors of the severe acute respiratory syndrome (Sars), an epidemic in 2002-2003 which, like the coronavirus, started in China and killed almost 800 people worldwide.
“Translating the impact that caused the Sars into 2020 volumes indicates an average of 260,000 barrels per day of a negative shock to global oil demand,” Goldman estimated in a note released last Tuesday. The forecast included a loss of 170,000 barrels per day of demand for jet fuel used for regional air transportation.