The world’s biggest oil producers could be about to slash output as they grapple with the fallout of the coronavirus. Representatives of oil producers’ cartel Opec and its allies are expected to meet as calls grow for action to support oil prices.
With a decline in China’s demand sending world prices lower, cutbacks by American companies may be ahead, but drivers are benefiting. American oil producers are bracing for the economic effects of the coronavirus outbreak on China and beyond.
The cost of crude has hit its lowest level in a year after falling 20 per cent since its peak in January.
The spread of the coronavirus means the Lunar New Year holiday has been extended in much of China and travel restrictions are in place. As a result, factories, offices and shops remain shut.
That means the world’s biggest importer of crude oil, which usually consumes about 14 million barrels a day, needs a lot less oil to power machinery, fuel vehicles, and keep the lights on. The outbreak is likely to have a particularly large impact on demand for jet fuel as airlines around the world suspend flights to China, and travel restrictions within the country mean far fewer flights.
Oil and natural gas producers have been suffering from low commodity prices for the past year and now expect a sharp drop in global prices for their products. As a result, they are preparing to slash investments in exploration and production.
As to how this will affect America, China buys only about 200,000 barrels a day of oil and refined transportation fuels from the United States, out of 8.5 million barrels of total daily American exports. But oil is a global commodity, and benchmark prices are set on world markets, not domestically. Lower prices mean lower profits – for everyone.
For more information visit www.opec.org