VIENNA (Reuters) - OPEC and its allies will consider making substantial oil production cuts to lift prices that have been battered by the coronavirus outbreak, Algeria’s oil minister said on Tuesday, as ministers began arriving for talks in Vienna this week.
The group known as OPEC+ is expected to consider deepening its existing cuts by removing a further 1 million bpd, although Russia has so far proved reluctant to back that proposal despite a 20% fall in oil prices since the start of the year.
The Organization of the Petroleum Exporting Countries, Russia and other producers already have a deal in place to cut output from Jan. 1 by 2.1 million barrels per day (bpd), a figure that includes additional voluntary cuts by Saudi Arabia.
But that has not been enough to counter the impact of the virus on China, the world’s biggest oil importer, and on the global economy, as factories are disrupted, fewer people travel and other business slows, curbing oil demand.
As other international conferences and gatherings have been scrapped because of the virus, OPEC officials considered whether talks should be held in person or by video. On Tuesday, the group announced that the number of delegates attending would be limited and journalists, who usually chase ministers, would not be allowed into OPEC’s Vienna headquarters.
“It will be difficult diplomatically. Ministers shake hands, hug, kiss (on cheeks). What will we do?” one delegate said.
Before this week’s meeting, sources said Saudi Arabia and some others producers had proposed extending the existing pact beyond its March expiry until the end of 2020 while also cutting another 1 million bpd of output only for the second quarter.
Russia, which has indicated support for an extension, has yet to swing behind the proposal for deeper cuts, even though oil prices have tumbled to about $52 a barrel LCOc1.
At that level, many OPEC states will struggle to balance their budgets, although President Vladimir Putin has said that current price was acceptable to Moscow.
A cut in U.S. interest rates on Tuesday supported oil prices, but they took another brief knock when an OPEC+ panel, the Joint Technical Committee (JTC), recommended a further cut of 600,000 bpd in the second quarter, the same level it recommended last month.
The JTC also recommended extending existing cuts to the end of 2020. Ministers could still decided to back deeper cuts.
“We will discuss the possibility of a new substantial cut by withdrawing from the market the quantities that are not consumed due to the coronavirus (outbreak),” Algerian oil minister and OPEC President Mohamed Arkab told state news agency APS.
“The trend is towards the continuation of the cuts adopted in December 2019. We already have a consensus between OPEC and non-OPEC, including Russia, on this point.”
OPEC ministers are due to meet on Thursday, while ministers from the wider OPEC+ group meet on Friday. Ahead of that, a ministerial committee convenes on Wednesday at 1130 GMT.
Under the existing pact, OPEC and its allies agreed at the end of last year to cut 1.7 million bpd from the market while Saudi Arabia, OPEC’s biggest producer, made voluntary additional cuts of 400,000 bpd.
Offering some encouragement to those seeking to persuade Moscow to back further reductions, the vice-president of major Russian oil producer Lukoil (LKOH.MM), Leonid Fedun, said the proposal to cut up to 1 million bpd would be enough to balance the oil market and lift prices to $60 a barrel.
“We are ready to cut as much as we are told to. Better to sell less oil but at a higher price,” Fedun told Reuters.
The International Energy Agency in February said that demand in the first quarter of 2020 was expected to fall by 435,000 bpd from a year earlier in what would be the first quarterly drop since the 2009 financial crisis.
Additional reporting by Rania El Gamal and Alex Lawler in Vienna, Vladimir Soldatkin in Brussels and Hamid Ould Ahmed in Algiers; Writing by Edmund Blair; Editing by David Goodman and Dmitry Zhdannikov