VIENNA – The OPEC oil cartel is calling for a deep production cut to keep crude prices from falling further as disruption to global business from the coronavirus slashes demand from air travel and industry.
Oil ministers from the 14 OPEC countries decided at a meeting Thursday to push for a cut of 1.5 million barrels a day, or about 1.5% of total world supply.
It remains unclear, however, whether that can stabilize a market as demand is falling sharply because of the virus outbreak's impact on businesses around the world.
Since the outbreak began in China last month, air travel to the country — the world's second-largest economy — has all but stopped, sapping demand for aviation fuel. Manufacturing output fell sharply as cities with millions of residents locked down to contain the spread of the virus. That has caused chaos for industries around the world, and major companies have halted business travel out of precaution.
OPEC's move appears aimed at keeping prices roughly where they are by preventing a further decline. Lower prices can help consumer demand, particular in the United States, by putting more cash in consumer pockets to consume other goods. They have less impact on drivers in Europe, where higher taxes are the main component in fuel prices.
US gasoline is $2.42 per gallon according to the U.S. Energy Information Administration, little changed from a year ago.
The OPEC proposal calls for its members to cut output by 1 million barrels a day, with another 500,000 barrels to be cut by non-member allies, like Russia, who have been coordinating production measures with the cartel in recent years. Members and non-members will meet Friday to decide.
Russia's agreement is not certain, however. Iranian Oil Minister Bijan Zangeneh noted that Russia has been reluctant to go along with cuts. Asked if OPEC had a Plan B if Russia does not go along, he replied: “No, we have no other plan.”
Analysts like Bjarne Schieldrop, chief commodities analyst at SEB bank, expect Russia to agree to some level of cuts because the outlook is dire.
“The coronavirus has now spread to 84 countries and regions around the world. The real impact on the global economy and the global oil market is huge,” he said.
He believes the cuts to production will keep the price of oil from dropping to $40 or $30 per barrel but not to push it higher than the current level around $50 a barrel. On Thursday, the international benchmark for crude was trading around $51 a barrel, down from around $69 at the start of the year.
The OPEC meeting was visibly affected by the coronavirus as journalists were barred from the headquarters building. Health officials were also seen using infrared thermometers to check entering delegates.
In December, OPEC oil-producing countries and Russia agreed to cut production by 1.7 million barrels per day, up from the 1.2 million barrel per day cut they had been observing for the previous three years.
But OPEC countries have been abiding by the recent cuts unevenly, with some nations quietly producing more than they agreed to.
On top of that, OPEC’s decisions to cut production have dwindling ability to boost oil prices, in part because the U.S. has been flooding the market with cheaply-produced crude.
McHugh reported from Frankfurt, Germany. Cathy Bussewitz in New York contributed to this report.