It's Groundhog Day as the Organisation of Petroleum Exporting Countries (OPEC) and its allies led by Russia, are once again considering cutting oil production. The cartel and its allies could shave off up to 500,000 barrels per day in response to the impact of the coronavirus on oil demand. The virus outbreak in China is affecting demand for oil as business activity in the world's largest importer of oil grinds to a halt. The mass movement and travelling that should have heralded the Chinese New Year did not happen because of the virus. And as the situation moves beyond China's borders, airlines are cancelling flights to China, while neighbouring countries have closed their borders or put restrictions on travel to and from China. The price of oil has now dropped to around $51 dollars per barrel, which is devastating for OPEC and many of its member countries that will be unable to balance their budgets at the current price.
The cartel and its allies have called an emergency meeting next week to discuss another cut in production. Russia the leading non-OPEC country in the alliance, has given its support to the idea of the February meeting. This followed Iran's request for the alliance to act in light of the impact of the coronavirus. Any new cut in oil supply will be on top of other cuts OPEC and its allies have already to made to stabilize the market, including the 1.7 million barrels per day reduction that is up for review at the end of March. Worryingly for OPEC and its allies is that nothing they have done in the past twelve months has substantially changed the market. As attitudes around the world to fossil fuels change, oil is becoming increasingly vulnerable to significant price fluctuations, especially during events like the virus outbreak.