Russia needs more time to assess additional Opec+ cuts, energy minister says

Alexander Novak downplayed the possible impact of the virus spread on demand

Russian energy minister Alexander Novak arrives for the 177th Organization Of Petroleum Exporting Countries (OPEC) meeting in Vienna, Austria, on December 5, 2019. (Photo by JOE KLAMAR / AFP)
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Russia needs more time to assess the impact of the coronavirus on the oil markets before agreeing to further cuts, the country's energy minister said.

"[We do] not fully understand the situation and clear forecasts for the development of events in connection with [the] coronavirus," Alexander Novak said in comments reported by Russia's Tass news agency. "To do this, more time is needed to see how the situation will develop, what impact will be on world markets for oil". 
Moscow's stance on the cuts would be announced next week, he added.

Last week Opec+, the alliance led by Saudi Arabia and Russia curbing 1.7 million barrels per day from the oil markets from January convened an emergency meeting of its technical committee in Vienna to explore how the group reacts to the implications of the coronavirus.

The group comprising Algeria, which holds the current presidency, Saudi Arabia, Russia, the UAE, Iraq, Kazakhstan, Kuwait and Nigeria recommended additional cuts of 600,000 bpd until June to the group. However, Russia, the largest producer within the group has been reluctant to be drawn into deepening cuts further. Opec+ is still scheduled to meet in Vienna on March 5 and 6 to review the cuts implemented from the start of the year.

Non-member Oman, which is compliant with the current Opec pact, said it supported further short-term deepening of restrictions.

"Oman supports the recommendation of Opec+ JTC for a potential short, deeper cut agreement, where Opec+ would reduce oil output immediately until the end of the second quarter, while we continue monitoring the impact of the coronavirus on oil demand growth," Omani oil minister Mohammed Al Rumhy told Reuters on Saturday.

Brent, the international benchmark for around two-thirds of the oil traded globally, declined nearly $11 since January as markets factored in the economic fallout from the spread of the virus. China, the world's biggest oil importer has been most affected by the spread of the virus, which has its epicentre in the city of Wuhan. Around 722 people have died from the epidemic, which has also infected more than 35,000 people worldwide.The virus has disrupted global supply chains, air travel and tourism.

Beijing, which tried to contain the spread of the virus during the Chinese Lunar New Year break, placed around 60 million people across various cities in lockdown. Domestic travel is projected to have declined 40 per cent year-on-year at the beginning of the current holiday period, according to JBC Energy. Swiss bank Julius Baer estimates a 20 per cent disruption to air traffic for a month will reduce Chinese demand for fuel by less than 0.2 per cent.

Russia's Novak however, downplayed the dent to oil demand, saying a 150,000 to 200,000 bpd decline is "insignificant".

He also said there is "no data, no information" on China limiting purchases from Russian oil and gas companies.

A downward revision of 300,000 bpd to global liquids demand is expected, due to the economic impact of the virus, according to Dammam-based Apicorp. Prices could hover in the $55 to 65 barrel range after the second quarter, the multilateral lender added.

Markets also remained bearish following the build-up of US crude inventory.

The US Energy Information Administration said there was an increase in oil stocks of 3.4 million barrels for the last week of January. The disruption to supplies from Libya has also helped prices from falling even further. The North African state's oil production fell to 400,000 bpd from 1.3 million bpd after forces loyal to Libyan General Khalifa Haftar imposed a blockade on the country's export terminals last month.

Brent settled at $54.47 per barrel on Friday, while West Texas Intermediate, which tracks largely North American crude grades closed the week at $50.34 per barrel.