Saudi Arabia ‘closely monitoring’ virus impact on oil market

Saudi Arabia is ‘closely monitoring’ the effect of the Chinese coronavirus outbreak on the oil market, but so far believes the crisis will have a ‘very limited impact’ on global demand.

Brent crude, the global oil benchmark, plunged nearly 4 per cent on Monday, dropping below $60 a barrel, as investors fretted about the impact of the outbreak on the Chinese economy.

Brent tumbled more than 6 per cent last week — the largest decline in more than a year as fears grew over how the virus may curb demand.

“The current impact on global markets, including oil and other commodities, is primarily driven by psychological factors and extremely negative expectations adopted by some market participants despite its very limited impact on global oil demand,” Saudi Arabia’s energy minister Prince Abdulaziz bin Salman said in a statement.

Separately, the United Arab Emirates energy ministry said in a statement on Monday that oil markets shouldn’t overreact to the perceived potential for lower oil demand due to the outbreak of coronavirus.

“It is important that we do not exaggerate projections related to future decreases in oil demand due to events in China, and the market does not over-react based on psychological factors, driven by some traders in the market,” the ministry said.

Algeria’s energy ministry said in a statement that while OPEC was ‘closely monitoring developments’ in the oil market, the fact that the World Health Organization hasn’t declared the outbreak an international emergency meant ‘the impact on the outlook for global oil demand would therefore be small.’

Deeper Cuts
Yet, with oil prices showing no sign of recovering, the Organisation of Petroleum Exporting Countries plans to debate several options when the group gathers in early March, including potential deeper production cuts or extending the current ones until the end of 2020, according to one delegate.

OPEC hasn’t yet reached a decision on the future of the cuts, the same person said, asking not to be named as the conversations were private.

Russia’s oil production surged to a five-month high in January, government data released on Monday show, following the new agreement to apply OPEC+ output cuts only to the country’s crude, not its condensate.

The coronavirus has spread further as China reported an increase in fatalities and infections, and the country extended the Lunar New Year holiday by three days.

Canada confirmed its first case while the US announced a fifth. President Xi Jinping on Saturday ordered a faster response, sending teams into hard-hit areas to push local officials to strengthen prevention and containment.

The virus outbreak is disrupting travel during a period when hundreds of millions of Chinese normally fly or ride home, triggering fears of lower oil demand.

Prince Abdulaziz said Saudi Arabia, the world’s largest oil exporter, was closely monitoring the situation both for its impact on the Chinese economy and the crude market fundamentals.

Yet, he said that the same ‘extreme pessimism’ that’s afflicting the market also occurred in 2003 during the so-called SARS virus outbreak, ‘though it did not cause a significant reduction in oil demand’.

Riyadh nonetheless said that the OPEC+ coalition of countries had the capability and flexibility needed to respond to any demand drop if needed.