ASSESSMENTS

In Response to Coronavirus, Russia Will Back Only Modest Action by OPEC+

undefined and Director, Global Energy and Middle East
Greg Priddy
Director, Global Energy and Middle East, Stratfor

Feb 11, 2020 | 10:30 GMT

Employees of PetroChina Southwest Oil & Gasfield Co., a CNPC subsidiary, work at a natural gas purification plant in Suining in southwest China's Sichuan province on Jan. 15, 2020.

Employees of PetroChina Southwest Oil & Gasfield Co., a CNPC subsidiary, work at a natural gas purification plant in Suining in southwest China's Sichuan province on Jan. 15. The impact of the new coronavirus outbreak on the oil market is unavoidable.

(Feature China/Barcroft Media via Getty Images)

Highlights

  • The failure to contain the spread of the new coronavirus effectively could widen and prolong the impact on global energy markets, making larger aggregate volume losses a plausible scenario.
  • OPEC+ will attempt to partially mitigate the impact on oil prices and inventories by cutting production, but Russia will insist on a cautious and time-limited approach as it wishes to avoid pushing prices down so much in the second half of 2020 that it stimulates competing production growth.
  • The severe impact on China's demand for natural gas is substantially reducing prices for spot LNG cargoes in Asia.

It is now clear that the impact of the new coronavirus on the world oil market will be substantial, but much uncertainty remains about the total impact on demand in 2020. The most probable scenario is a "sharp but short" hit to demand, but a wider spread could deepen and lengthen the impact. OPEC and other producers will attempt to at least partially mitigate the impact on oil prices, but Russia will likely insist on a cautious approach that does not last long....

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