The volatility in the oil market is back and uncertainty and unclear demand are once again spooking producers and investors.
OPEC held a meeting of the technical committee who have a recommendation in place for a further cut in production, but this needs ministerial ratification, so we wait and see.
The meeting of the technical committee at OPEC delivered a strong recommendation in favour of taking another 600,000 barrels a day off the market.
Members of the OPEC + group were in attendance at a meeting that took several days, but Russia was uncommitted about implement of this cut.
Right now, the group is waiting for approval from Russia, but this still needs full ministerial approval.
The Russian foreign minister, Sergei Lavrov said his country supported cooperation with other producers, but the market and OPEC need to wait on the official word from the Russian Government.
The magnitude of the oil demand shock “is on par with 2008 and 2009” according to investment bank Goldman Sachs.
Investment bank revises outlook
Speaking on Bloomberg TV, the global head of commodities research, Jeff Currie said the difference between any other virus is “the magnitude of the quarantine, with demand down anything from two to three million barrels a day in China.”
The bank has revised its outlook for the oil price putting an estimate of US$63 a barrel on Brent for the year ahead. JP Morgan is now looking at an average price for Brent at US$60.40 a barrel.
This pull back in demand was not the news that producers needed to hear as they began the new year.
Chinese supply worries
Supply worries were already at the forefront of 2020 planning, but with these added complications, it has become clear there’s too much oil on the market.
Chinese oil refineries are reported to be cutting back refinery runs as demand falls.
Wood Mackenzie also revised its annual forecast for 2020, saying it expected oil demand growth in China to remain weak, down by more than 200,000 barrels a day, taking it to around 13 million barrels a day, especially in the first quarter.
The impact of the coronavirus continues to spread in China and beyond, with thousands more being affected and the death toll rising.
With flights and travel suspended to and from China from around the world, oil demand is suffering.
This is the fifth week of losses with Brent crude losing around 15 percent since the beginning of the year.