The Daily Dose

Crude oil prices were again bouncing around the $55 per barrel mark following the selloff that greeted the 2.5% rally for Brent in the previous session. The standstill for Brent may be reflective of the confusion from the results of a Vienna meeting for the joint committee monitoring OPEC+ production restraints. The committee recommended further cuts of around 600,000 barrels per day, but Russia’s reluctance raised concerns about implementation. 

The 600,000 bpd proposal would trim the glut expected during the first quarter and counter some of the demand destruction emanating from general economic malaise and the short-term contraction from the coronavirus. But the bears are ruling the day.

The price for Brent crude oil as of 8 a.m. EST was $55.09 per barrel, down some 0.36% from the close of trading Wednesday and falling fast.

The 15 minutes of fame for the coronavirus may be waning. Short-term implications, however, are readily apparent in the Chinese economy, the second-largest in the world after the United States. OPEC expects oil demand to fall by some 200,000 bpd and, according to Reuters, sales of crude oil and liquefied natural gas “almost ground to a halt this week” because of demand contraction. Demand during the first quarter is usually low and inactivity could be extended given China’s decision to push the Lunar New Year holiday season into February.

What’s moving the market today, however, is not the coronavirus so much as Russia’s reluctance to get on board with Saudi Arabia on deeper production cuts. OPEC on Wednesday announced plans for an extraordinary meeting in March to consider the current market situation, though not without some reluctance. S&P Global Platts reported that “beyond the physical market practicalities, the politics of agreeing on deeper cuts could be difficult.” One particular difficulty may be in considering an eventual return of Libyan production. Internal battles for control in Libya led to port closures, sidelining more than half of its full potential of some 1 million bpd in exports. A Libyan return would offset the latest cut proposal from OPEC and contribute to supply-side pressures.

The joint committee, which advises rather than sets policy for OPEC, continues its meetings into Thursday, so chatter out of Vienna will certainly be a market factor. Some movement came early in the session on word that China was easing some tariffs on US goods, though reports of a “disaster-related clause” in the so-called Phase 1 trade deal may render that moot. Elsewhere, French supermajor Total announced a 6% increase in annual dividends, surprising the market on the upside. Chairman and CEO Patrick Pouyanne said fourth quarter performance was strong “despite the drop in oil prices” and a similar contraction in natural gas.

US Treasury Secretary Steven Mnuchin added fuels to the bears on Thursday by saying there would be obvious economic impacts from the coronavirus. In geopolitical news, Austrian energy company OMV reportedly stood pat on its decision to continue backing the second leg of the Nord Stream 2 pipeline, bucking pressure from a US government concerned by Russian influence in the European energy market. US President Donald Trump, meanwhile, was acquitted by the Senate on impeachment charges and is all-but certain to make some noise on Twitter.