OPEC considers further oil cuts as price slides below $60

Indications emerged on Monday that Organisation of Petroleum Exporting Company (OPEC) and its allies might extend its current production cuts or even deepen them to buffer excessive price slides arising from the coronavirus outbreak in China.

The OPEC+ alliance, which has Russia as a member, has been curbing production since 2016 and is now devising measures to check a worsening price retreat, which saw Brent plunge by roughly 17 per cent peaking at about $70 early this month.

“The next two weeks are very critical for not only the oil market but the global economy,” a senior OPEC source told S&P Global on Monday.

“There is right now discussion among the ministers of OPEC+ of watching the market closely and preparing to do anything if there is a need for it,” he further said.

One of the options on the table is extending cuts in output till the end of the year.

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The OPEC source’s remark came in the wake of an attempt by Abdulaziz bin Salman, Saudi Arabia’s oil minister, to downplay the raging economic consequences of the coronavirus epidemic, a gambit aimed at calming the market after crude plunged below $59 a barrel.

Prince Abdulaziz had said Saudi Arabia, OPEC’s biggest producer, “is closely monitoring the developments in the global oil market resulting from the gloomy expectations about the impact of the coronavirus outbreak on the Chinese and the global economy and oil market fundamentals.”

He asserted that the effect on global markets, as well as oil and other commodities, is spurred by “psychological factors and extremely negative expectations adopted by some market participants despite its very limited impact on global oil demand.”

Brent, the international benchmark, cratered to $58.50 a barrel on Monday, down by over 3%, below OPEC’s apparently comfortable price levels and far below $80 a barrel, which Saudi needs to balance is budget this year.

Nigeria’s Bonny Lite is benchmarked against Brent and the 2020 budget is based on oil price benchmark of $57 per barrel.

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