Published: Tue, February 04, 2020
Markets | By Otis Pena

Saudis mull deep oil output cuts over coronavirus

Saudis mull deep oil output cuts over coronavirus

The move was the second-fastest plunge from recent highs over the past seven years, according to Dow Jones Market Data Group.

Crude sank below $50 a barrel in NY for the first time in more than a year on Monday on signs that fuel consumption in the world's biggest oil importer has plunged as much as 20%.

Both energy components were down more than 20 percent from their January 6 peaks and would need to close below $55.21 and $50.61 to remain in bear market territory.

"Our strategists suggest oil markets appear to be pricing in a demand shock equivalent to that seen during the SARS outbreak in 2003", wrote John Normand, head of cross-asset fundamental strategy at J.P. Morgan Chase & Co.

Reuters reported Monday that the Organization of the Petroleum Exporting Countries (OPEC) and its allies, a group known as OPEC+, are considering a further 500,000 bpd cut to their oil production in the wake of reduced Chinese demand.

Crude oil for March delivery was quoting lower by Rs 12, or 0.33 per cent, at Rs 3,639 per barrel with an open interest of 3,394 lots.

Crude oil prices opened gap down in morning trade after correcting nearly 3 percent on December 3.

The coronavirus is the latest blow to the US shale industry that has struggled to stay profitable.

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The bank also said the market is expecting a negative impact of 0.44% on global GDP due to the virus. The bank's global research team now has its 2020 global growth forecast at 3.1 percent.

What does this tell us about outbreak's impact on the global economy?

Oil prices fell on Monday to their lowest in more than a year, dragged down by worries about lower demand in top crude importer China after a new coronavirus outbreak spread from there to about 20 other countries. Wall Street analysts surveyed by Refinitiv were anticipating inventories to increase by 300,000 barrels.

The new coronavirus has killed over 420 people and infected thousands across more than a dozen nations, raising fears of a global economic fallout.

Additionally, an OPEC and non-OPEC panel called the Joint Technical Committee (JTC) has scheduled a meeting for February 4-5 in Vienna to assess the impact of the virus on demand, other OPEC+ sources said.

Business activity in China is expected to decline, prompting Beijing to consider seeking flexibility on its trade deal with the US that's supposed to take effect this month, according to people familiar with the matter.

Oil ministers will debate whether, and by how much, to cut oil production, with cuts of up up to 1m barrels a day - or 1% of world supplies - on the agenda, according to the New York Times.

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