OPEC’s Joint Technical Committee (JTC) recommended extending the current production cuts through the end of the year while adding an additional 600,000 bpd in reductions.
Russia hesitated last week, before signaling some support for additional cuts. Still, nothing has yet been confirmed or approved. OPEC+ had raised expectations of an emergency meeting, rumored to take place as soon as this week, but now it looks like nothing will occur before the previously scheduled meeting in March.
Nevertheless, the odds of deeper cuts materializing remain relatively high. But oil traders do not seem to care. The announced decision by OPEC’s JTC to recommend further action has done nothing for oil prices. WTI dipped below $50 per barrel on Monday.
Meanwhile, warring factions in Libya have resumed negotiations in Geneva, which could lead to a restart of oil flows. “Over 1 million barrels of additional oil per day from Libya could possibly push the Brent price towards the $50 per barrel mark in the short term,” Commerzbank wrote in a note on Monday. “That said, we expect the oil price to stabilise in the medium term if OPEC+ agrees on the additional production cuts.”
Moreover, any cuts taken in March will take several weeks before they materialize in the market, which, again, could occur after the worst of the coronavirus has already passed.
The crisis for gas is arguably worse. On Monday, Nymex prices for March delivery fell below $1.80/MMBtu, a price that is ravaging the U.S. shale gas industry. But the gas glut is not just isolated to the US. It is now a global phenomenon. LNG prices have fallen below $3/MMBtu in Asia. In Europe, gas inventories are extraordinarily high for the time of year.
China’s CNOOC is trying to wriggle out of LNG purchasing agreements, declaring force majeure on several LNG cargoes late last week. LNG suppliers, including Shell and Total SA, rejected the declaration. “With demand plunging, our tanks are topping. And workers are getting exhausted waiting for colleagues to return from holiday to relieve them,” an executive at an LNG terminal in northern China told Reuters.