Opec ready to act as coronavirus hits oil price: Update

Adds comments from Opec source and updates China imports total

Concern about the potential impact of the Chinese coronavirus outbreak on oil demand is putting mounting pressure on crude prices, outweighing Libyan supply disruptions and prompting reassurances from Saudi Arabia.

Saudi Arabia and other members of the Opec+ group of producer countries have the capability and flexibility to take "the necessary actions to support oil market stability", Saudi oil minister Prince Abdulaziz bin Salman said.

Deepening the group's output cuts is among the options, a senior Opec source said today. "There is a discussion. There are different issues, there are different options, that is [the] discussion between [ministers]. But they are really ready to do whatever is possible in order to make sure the market is stable," the source said, adding that the next two weeks are "very critical" in terms of observing market fundamentals.

Reassurances from Saudi Arabia and Opec have failed to stem a further slide in oil prices. The Ice front-month March Brent contract dipped to $58.50/bl earlier today, down by $2/bl from its close on 24 January. It is currently just below $59/bl, down by around 2.5pc. The drop comes despite Libya's oil sector facing its biggest disruptions since the 2011 fall of Muammar Gaddafi, with escalating conflict prompting the closure of most of its oil infrastructure and drastically cutting output to below 300,000 b/d from an estimated 1.1mn b/d in December.

Prince Abdulaziz insists that the fall in crude prices is being driven by psychological factors rather than fundamentals. Some market participants have adopted "extremely negative expectations" about the potential effect of the coronavirus outbreak "despite its very limited impact on global oil demand", he said. "Such extreme pessimism occurred back in 2003 during the Sars outbreak, although it did not cause a significant reduction in oil demand."

China's National Health Commission said today that the death toll from the virus had risen to 80 as of yesterday morning, from 17 on 23 January. The commission has so far received a total of 2,744 confirmed cases. Dozens of cases have been confirmed outside China, including in Thailand, Japan, the US and Australia. To limit the virus' spread, Chinese authorities have implemented travel restrictions and extended the lunar new year holidays.

Saudi Arabia is China's top crude supplier, with deliveries hitting a record high of 2mn b/d in November, bringing the January-November average to 1.67mn b/d, up by 54pc on the year. China imported around 10.7mn b/d of crude in December.

Opec+ is scheduled to discuss its production strategy at meetings in Vienna in early March. The group is unlikely to propose an emergency meeting unless market conditions worsen, the Opec source said.

Russian energy minister Alexander Novak raised concerns about Moscow's continued participation in the output restraint initiative after saying last month that the arrangement is "not eternal". But Russia is "there to stay", the Opec source said today. It is in "their interest to be part of the market management team".

By Iain Packham and Ruxandra Iordache