Coronavirus sends oil price skidding

China’s coronavirus outbreak is weighing on the oil price.

With the world’s second-largest economy in the grip of this sometimes-fatal illness, traders fear oil demand is set to fall markedly.

Not only does the coronavirus, which has already claimed more than 350 deaths in China, threaten to damp business and industrial activity in that country, but internal travel restrictions to prevent its spread have cut China’s oil requirement.

A critical time for OPEC

Tuesday morning, Brent crude, a key international benchmark, was 1.29% higher at $55.15 a barrel. One month ago, on 6 January, it stood at $68.51.

Three months ago, on 4 November, it traded at $62.13 and 12 months ago, on 4 February 2019, it changed hands at $62.51.

The price of West Texas Intermediate (WTI) followed a similar pattern, rising 2.22% this morning to $51.22 a barrel, significantly lower than the $63.27 at which it traded a month ago, on 6 January.

Three months ago, on 4 November, it was worth $56.54 and 12 months ago it changed hands at $54.56.

Officials of the 14-nation cartel, the Organisation of Petroleum Exporting Countries (OPEC), are reported meeting today and tomorrow at its headquarters in Vienna to formulate a response to the coronavirus threat to oil prices. Also present will be officials from the so-called NOPEC group of supportive oil producers who are not members of the organisation.

The meeting comes at a critical time for OPEC quite apart from the fresh challenge of the coronavirus. In December 2016, OPEC and the nine members of NOPEC agreed a package of output cuts to halt a seemingly-unstoppable slide in the price.

This was successful, at least in part, and the “declaration of co-operation” has been renewed for limited periods ever since. The current arrangement, which reduces output by 1.2 million barrels a day, roughly equivalent to 1.2% of global production, runs out next month, and ministers from the participating countries are due to meet to decide whether to renew it and, if so, for how long and by how much in terms of lowering production.

Memories of late Nineties crisis

Now there have been suggestions that the ministerial meeting may be brought forward in light of the coronavirus. For OPEC officials and members keen to extend the production cuts, the virus may not be entirely bad news, as it could focus minds on the need to support the price and help corral more reluctant members of the 23-nation grouping into agreeing further reductions.

Oil price volatility is nothing new. During the last five years, Brent has swung between a low of $28.94 a barrel on 15 January 2016 to a high of $84.16 on 5 October 2018.

But OPEC members may well recall the sequence of events in the late Nineties, when the Far Eastern economic crisis, affecting South Korea, Malaysia, Thailand and others, seemed likely to depress demand, setting in train a rapid slump in the price.

At one point, oil tankers were said to be roaming the seas trying to find a port that would take their cargo.

Saudi Arabia is traditionally the leading member of OPEC and Russia has a senior role in NOPEC. Other OPEC members include the United Arab Emirates, Nigeria and Libya, while NOPEC takes in Mexico, Malaysia and Oman.


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