Virus panic makes OPEC cat-herding even harder – Breakingviews

Virus panic makes OPEC cat-herding even harder – Breakingviews:

Oil prices are packing a year’s worth of ructions into less than two months. Brent crude futures soared from just above $60 a barrel in early December to $70 a month later, amid supply fears following the U.S. drone strike on Iranian general Qassem Soleimani. They’ve now slumped below $60 on fears of a coronavirus-linked demand implosion – and rendered the job of the producer club that nominally controls oil prices much harder.

The Organization of the Petroleum Exporting Countries had looked to be in control. In early December, Saudi Arabia’s oil minister Prince Abdulaziz bin Salman managed to get the 14 members of OPEC and 10 more allies collectively known as OPEC+ to increase pre-existing cuts amounting to 1.2 million barrels per day to as much as 2.1 million bpd. The unity of purpose reflected concern about a price-sapping period of supply outstripping demand. Even after the cuts, the market could be 0.7 million bpd oversupplied in the first half of 2020, Jefferies reckons.

Still, as Saudi well knows, managing OPEC is like herding cats. There’s no guarantee that producers will do what they say – Nigeria is just one of several perennial agreement-flouters. Russia, the world’s second-largest producer, is already irked at having to pump less, given its budget breaks even with oil prices below $50 a barrel, against $80 for Saudi. Hence December’s cuts were only agreed until March.