Before that, however, the oil market will suffer a 200-million-barrel negative impact on demand during the first quarter, Russell Hardy said, with loss of demand in China at 4 million bpd at the moment, on the back of travel bans and lower economic activity.
While this is undoubtedly negative for prices, Vitol’s CEO also said there is a positive effect to counter the impact of the coronavirus, and this is lower production in Libya and Venezuela, along with OPEC plans to deepen their production cuts.
“All of those factors are going to help re-balance the 200 million barrels, which will leave the market in a better position for the second half of the year,” Hardy told Bloomberg in an interview. “There’s an OPEC meeting to come in a couple of weeks time and the market’s anticipating some kind of supply response from OPEC.”
OPEC officials earlier this month recommended additional cuts of 600,000 bpd to prop up oil prices, but Russia has been reluctant to agree, asking for more time to consult on the recommendation. Related: Indonesia’s Oil Output Expected To Fall In 2020
This opposition is hardly surprising: Russia has consistently budgeted for lower oil prices than the actual ones since the 2014 price collapse, and as a result is much more resilient to price drops than Saudi Arabia. It has also signaled repeatedly it is making a compromise with its oil industry in supporting the cuts as they are.
The next meeting of OPEC and its partners in the cuts is scheduled for early March and if history is any indication, Moscow will agree to an extension or deepening of the cuts, but it may not stick to them.
Meanwhile, the EIA, the IEA, and OPEC itself have revised down their global oil demand outlooks, with the EIA the most pessimistic, expecting demand to take a hit of 378,000 bpd for this year. OPEC revised down its outlook by 230,000 bpd earlier this month, while the IEA’s downward revision was for 365,000 bpd.
By Irina Slav for Oilprice.com
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