Opec oil production, which witnessed a steep decline of 500,000 barrels per day during January 2020 to reach the lowest level in four months amid persistent weak global demand and falling prices, is expected to be scaled down further, market analysts said.

Industry experts believe there is a strong possibility of deeper output reductions on the table as Opec and its allies meet in Vienna in March to discuss the impact on oil demand from the coronavirus outbreak in China.

The 14-member group and allies are also likely to cut oil demand by more than 250,000bpd in the first quarter, they predicted.

Oil has fallen $10 a barrel this year to $56, lower than the level many Opec countries need to balance their budgets.

Analysts at Kamco Invest, a Kuwait-based financial services firm, said Brent crude spot reached a 13-month low level of $53.39 per barrel during the second week of February-2020 as the outbreak of coronavirus affected prospects of higher demand in the near term.

The decline in demand was primarily seen in China, which has imposed travel restrictions in the country due to the virus outbreak. As a result, ChemChina reportedly closed down a 0.1mbd crude refinery in East China and reduced processing rates to 60 per cent at two other plants that have a processing capacity of 0.3mbd.

The decline in oil demand forecast was recently echoed by a number of agencies.

In its monthly report, Opec lowered oil demand growth forecast for 2020 by 0.23mbpd to a growth of 0.99mbpd and projected that the demand would average at 100.73mbpd during 2020.

The International Energy Agency (IEA) also just recently lowered its demand growth forecast for 2020 to the lowest level since 2011. The agency cut its demand growth expectations by 365,000bpd to a growth of 825,000bpd for the year citing the impact of the virus outbreak.

The EIA also lowered US oil production growth forecast for 2020 from 1.06mbpd growth in its previous report to 0.96mbpd in the latest report. Production is now expected to reach 13.2mbpd in 2020. For 2021, growth is expected to be much lower at 0.36mbpd to reach 13.56mbpd highlighting spending cuts announced by a number of US drillers for the current year.

Oil market analysts said Opec collectively pumped 28.86 million barrels a day in January, and if it maintains that rate there will be a surplus of 570,000 barrels a day during the second quarter, when consumption slows down seasonally. Opec doesn't see the effects of the disease confined to the start of the year, bringing down its growth estimate for global oil demand in 2020 as a whole by about 230,000 barrels a day to just under one million a day.

The demand and price slump has spurred the Opec's biggest exporter, Saudi Arabia, to press fellow members and allies to hold an emergency meeting and consider new output cutbacks. Yet the proposal has so far met resistance from Russia, the group's most important ally, which is able to weather lower prices more easily, analysts said.

 

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