The Organization of the Petroleum Exporting Countries proposed Thursday that oil output be curbed by 1.5 million barrels a day, or 1.5 percent of world oil supplies, to deal with the effects of the spreading coronavirus outbreak on demand.
The proposed cuts are more than most analysts expected but seem unlikely to change the gloomy sentiment in the oil market. After the announcement, prices for Brent crude, the international benchmark, fell about 0.8 percent to $50.71 a barrel.
The group proposed that the cuts, which would run through June 30, be shared with non-OPEC allies. Under the arrangement, OPEC, a 14-member group, would make one million barrels of trims, while Russia and other allies would cut 500,000 barrels.
The deal would probably need to be ratified at a meeting of officials from OPEC, Russia and other oil-producing countries like Kazakhstan and Oman that is scheduled for Friday. Uncertainty over an ultimate agreement may explain the market’s negative reaction.
Explaining the proposals, OPEC said the epidemic has had “a major adverse impact” on economic and oil demand forecasts. IHS Markit forecast on Wednesday that demand for the first three months of 2020 would fall by 3.8 million barrels a day, the biggest quarterly drop that its analysts had seen, topping even what occurred in the financial crisis of 2008-9.
The meetings are taking place at OPEC’s headquarters in Vienna. OPEC also said that cuts of an estimated 2.1 million barrels a day, already in place, should be continued for the rest of the year. If all the existing and suggested cuts are put into effect, OPEC and its allies would be removing close to 4 percent of supply from the market.
Along with these voluntary cuts, Iran, Libya and Venezuela — all OPEC members — are producing substantially less than their potential because of a mixture of sanctions and political turmoil.
Despite this large fall in production, oil prices have been under pressure since the emergence of the coronavirus epidemic in China this winter. Abdulaziz bin Salman, oil minister of Saudi Arabia and OPEC’s de facto leader, has been pushing hard for emergency measures to manage the market.
Most analysts think that the recent pattern of apportioning cuts will continue. The Saudis have been taking by far the largest share of trims, helped by their allies Kuwait and the United Arab Emirates.
Russia, however, is usually a tough negotiator with OPEC and has been reluctant to agree to new cuts, forcing a showdown at the Vienna meetings. During more than three years of cooperation with OPEC, the Russians have succeeded in pushing Saudi Arabia, the world’s largest oil exporter, to absorb the brunt of production cuts while doing relatively little themselves.
“The Saudis are cutting more and more, and the Russians haven’t cut much at all,” said Bhushan Bahree, senior director at IHS Markit, a research firm, in an interview before the current series of meetings.