Some of the world’s biggest oil producers are grappling with how to respond to the coronavirus outbreak, which has hit oil prices sharply.
The price of crude has fallen by about a quarter since the virus began to spread internationally, with demand for oil expected to decline.
Oil exporters’ group Opec is meeting in Vienna to discuss its response.
Opec members are considering cutting output to try to reverse the falls in oil prices.
But they want some non-member countries, especially Russia, to take similar steps.
The meetings underway at Opec’s headquarters in Vienna are dominated by the impact of the new coronavirus.
The Algerian Energy Minister, Mohamed Arkab, who is chairing the meeting, said in his opening address that the virus has had a “pronounced adverse impact on economic and oil demand forecasts in 2020”.
Travel restrictions have been a central element in the official response to the health crisis, especially in China where it started, and in some of the countries the virus has spread to.
That has affected the movement of people and goods. In addition, many people have chosen to reduce their own travel even when official restrictions would not have prevented them.
This has hit demand for oil, which accounts for more than 90% of global transport fuel.
The International Energy Agency (IEA) – a rich countries’ organisation – expects demand for crude oil to decline in the current three-month period, which would be the first quarterly decrease in more than a decade – that is, since the financial crisis.
At the time of its last oil market report in mid-February, the IEA was still expecting demand to increase for this year as a whole, but it slashed its forecast for how much it would grow. If its forecast turns out right it would be the weakest since 2011.
That’s a forecast, but the impact on the cost of oil is already apparent. The price of crude oil is about a quarter lower than it was in early January.
Opec wants to turn that round.
When the group has been in that situation in the past, it has often responded with production cuts.
It is currently limiting its production in response to earlier price falls, in an agreement that is due to expire at the end of the month.
Now, the group is discussing proposals to cut further and for longer. Saudi Arabia is reported to be seeking a further reduction of between one and one a half million barrels per day. Total global production is currently about 100 million.
Opec accounts for about a third of that total, so it always faces the issue that it suffers the pain of cutting production while other producers get the benefit of the higher prices.
The group is currently operating under an agreement with a number of non-members to limit production, an arrangement which has been in place since late 2016.
The most important, by far, of these is Russia. It is currently producing more oil than any Opec member including Saudi Arabia.
Opec members would like Russia and the other nations that make up a group known as Opec+ to commit to further production cuts now.
This wider group is due to meet on Friday after the Opec meeting. So far, Russian officials have been unwilling to commit to more cuts.
The rise of shale oil production in the United States adds to the challenge Opec faces in seeking to manage prices.
The US is now the world’s biggest producer and shale oil producers can respond quickly with additional production if prices rise.
So if Opec plus does make some progress, it is likely to stimulate more US production which tends to limit the upward move in prices.