U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are drifting lower on Monday shortly before the regular session opening. Traders are saying the coronavirus’ impact on China’s oil demand and Russia’s delay in making a decision about additional production cuts initially improved last week by OPEC and its other allies, are weighing on prices.
Production Cut Update
An OPEC, non-OPEC technical panel has recommended extending a current oil supply cut pact until the end of 2020 and more output reductions due to the impact of the coronavirus on oil demand, Algeria’s oil minister said in a statement.
Mohamed Arkab, who currently holds the prudency of the Organization of the Petroleum Exporting Countries (OPEC), also said that the OPEC+ Joint Technical Committee, known as the JTC, has recommended that “an additional reduction in production be made until the end of the second quarter of 2020”.
“The coronavirus epidemic has a negative impact on economic activities, especially on the transport, tourism and industry, in China particularly, and also increasingly in the Asian region and gradually in the world,” Arkab said.
WTI and Brent crude oil are going to have a hard time rallying as long as Russia stands in the way of the production cut increases.
Prices were boosted last Thursday after a technical committee advising OPEC and its allies led by Russia, known as OPEC+, agreed to recommend a provisional additional cut in oil output of 600,000 barrels per day (bpd). If adopted at a future meeting of OPEC+, the total size of the output curb from the group would rise to 2.3 million bpd. However, Russia killed the rally when officials said they needed more time to consider adopting the new policy.
Russian Foreign Minister Sergei Lavrov said on Thursday that Moscow supported cooperation with other producers, in remarks which appeared to boost prices initially. However, Energy Minister Alexander Novak said on Friday Russia needed a few days to analyze the oil market and would clarify its position on deeper cuts next week. This capped gains and drove prices lower, in a move that has extended into Monday’s rally.
In making his decision to wait, Novak also said U.S. oil output was not expanding as fast as before.
“Growth is slowing down in the United States. It was 1.3 million bpd last year…This year, we expect less than 1 million,” he said. “Oil production growth is slowing down there due to lower prices.”
We don’t know for sure when Russia will make its decision, but it should be a market moving event. If Russia decides to go along with the production cuts then look for a short-covering rally. If Russia passes on the cuts, prices could plunge to multi-year lows.
This article was originally posted on FX Empire
More From FXEMPIRE:
- Global Markets Edge Lower, Coronavirus Fears Linger, Chinese Inflation Spikes
- How to Become a Pro Trader: All You Need to Know for 2020
- Market News Report: February 10, 2020 – February 14, 2020
- A Plague On The Market, Or a Buying Opportunity?
- Crude Putting Pressure on $50 Level
- EUR/USD Mid-Session Technical Analysis for February 10, 2020