Key Points
- China’s National Health Commission confirmed Wednesday that the coronavirus had infected 5,974 people, with 132 deaths and 103 cured.
- Financial markets have been spooked by the spread of a deadly pneumonia-like virus, with energy market participants trying to assess the potential economic fallout.
- “I have to say this delicately, but OPEC, I think, is starting to realize that even though they cut back, try to balance output and stabilize prices, they have less influence,” John Driscoll, chief strategist at JTD Energy Securities, told CNBC.
OPEC’s battle to support oil prices as China’s coronavirus spreads internationally shows the producer group is struggling to carry the same influence over global crude markets, energy analysts have told CNBC.
It comes amid speculation that OPEC and non-OPEC producers, sometimes referred to as OPEC+, could extend production cuts if the intensifying outbreak of the coronavirus hampers oil demand growth.
International benchmark Brent crude traded at $59.86 a barrel Wednesday afternoon, up over 0.5%, while U.S. West Texas Intermediate (WTI) stood at $53.70, around 0.45% higher.
Both crude benchmarks have pared some of their recent losses, after slumping to multi-month lows earlier in the week.
“Will deeper OPEC supply curbs provide the panacea for the current oil market malaise? Probably not,” Stephen Brennock, oil analyst at PVM Oil Associates, said in a research note published Wednesday.
OPEC starting to realize they have ‘less influence’
China’s National Health Commission confirmed Wednesday that the coronavirus had infected 5,974 people, with 132 deaths and 103 cured.
The virus, which was first discovered in the Chinese city of Wuhan, has spread to other major cities such as Beijing, Shanghai, Macao and Hong Kong.
Financial markets have been spooked by the spread of a deadly pneumonia-like virus, with energy market participants trying to assess the potential economic fallout.
Brennock said the timing of the next OPEC+ meeting carried “added importance,” given the early March gathering will mark two months since the coronavirus was first detected.
“That’s a similar timeframe in which the SARS outbreak in 2003 peaked. Oil demand jitters could therefore be at their most intense,” Brennock said.
“Set against this backdrop, the producer alliance will be under even greater pressure to send a strong and positive message for the oil market,” he added.
OPEC President Mohamed Arkab has previously said he believes the virus outbreak will have little impact on the global oil market in the near-term, but suggested the Middle East-dominated producer group is ready to act to any further developments.
Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman has also insisted that OPEC+ has the capability to steady the oil market if necessary.
The group has been limiting supply to prop up crude futures and recently increased its agreed output reduction by 500,000 barrels per day (b/d) to 1.7 million b/d through March.
John Driscoll, chief strategist at JTD Energy Securities, told CNBC’s “Capital Connection” on Tuesday that he didn’t foresee “any fundamental strength” in the oil market to support crude futures.
“I have to say this delicately, but OPEC, I think, is starting to realize that even though they cut back, try to balance output and stabilize prices, they have less influence.”
“That is simply because the balance of power has shifted,” Driscoll said, citing “massive new fields” in Norway, Brazil and Guyana.
“And, of course, the U.S. being the biggest non-OPEC producer. (With) all of this excess supply, if OPEC cuts back, they might lose market share and that gap could be filled by a non-OPEC producer,” Driscoll said.
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