Fuel prices to come under pressure on OPEC output cut

Against a backdrop of ebbing energy demand as the coronavirus outbreak sweeps the globe, OPEC on Thursday agreed to cut the output by an extra 1.5 million barrels per day (bpd) in the second quarter of this year - but only if Russian Federation joins in.

U.S. West Texas Intermediate crude hit a 14-month low of $43.32 a barrel, before recovering to $45.23, up 47 cents, or 1.1%.

Opec will put the plans to its allies in the Opec+ group, led by Russian Federation, in a separate meeting on Friday in the hope they will agree to make up one-third of the planned cuts which are due to begin next month. The global benchmark crude was trading at a premium of $4.30 a barrel to the WTI for the same month.

Wednesday's JMMC meeting is part of the process of drawing up recommendations for the wider meeting of ministers from OPEC on Thursday and a meeting of OPEC+ ministers on Friday.

Unfortunately, the virus outbreak, alongside its negative impacts, prompted OPEC to extend the deadline beyond March, while proposing the additional 1 million output cut.

"We expect that additional output cuts will last until the end of June this year", Burman said, adding "beyond this period, there is the risk that OPEC production cuts will just encourage non-OPEC production, which would be self-defeating".

He said, "tomorrow, everything depends on the non-OPEC agreement to accept to cut for half a million barrels for the second quarter", adding, "If they do not accept it we have no deal".

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Russia, however, appears reluctant to sign up to more cuts. Siluanov did not say what Russia's decision in regard to deeper oil output cuts might be.

On the other hand, there was news Saudi Arabia was pushing for a million barrels per day cut to be agreed this week, while central banks globally were increasingly signalling an appetite to intervene and support markets by cutting interest rates, he said.

In a statement on Tuesday, Opec said it was following United Nations guidelines and planned to "shorten the format of such gatherings, limit the number of participants and cancel any related side-events".

"Whether Russia will agree to the cuts is the million-dollar question".

Demand growth forecasts in 2020 have been slashed as factories have been disrupted, people have been deterred from travelling and other business activity has slowed.

Global crude oil demand experienced a sharp drop-off over recent weeks due to economic fallout from the novel coronavirus outbreak. Up to Friday, they will discuss how they can support prices in the face of coronavirus-related weak global oil demand and the rising supply glut.

Capital Economics declared in its report on Wednesday that as coronavirus has spread rapidly outside China, economic disruption worldwide has mounted.

  • Darren Santiago