Russia could be holding up a decision on whether OPEC+ will make emergency production cuts.
Analysts said Moscow's apparent reluctance to make further production cuts seems to have delayed a technical committee's recommendation to OPEC+ on whether to hold an emergency meeting.
The technical committee, which consists of country representatives from OPEC and Russia, extended its two days of meetings into Thursday, in an effort to find a consensus. The committee is tasked with running scenarios on the oil market that would lead to a recommendation on production policy.
"Once again the Russians are reticent about additional action, even though they don't bear the heavy burden of the adjustment," said Helima Croft, head of global commodities strategy at RBC.
At the same time, the committee has been meeting in Vienna this week, and there have been high level discussions between Russia and Saudi Arabia, analysts said.
"I'm hearing the Russians would rather monitor the situation for now, rather than risk losing more market share," said John Kilduff, partner with Again Capital. "The market will promptly punish OPEC+ for its inaction."
Last Friday, Russia's Energy Minister Alexander Novak said the OPEC+ ministers could discuss moving its meeting forward but said it needs several more days to monitor the situation.
Oil prices already fell into a bear market for 2020, on the anticipated steep drop in demand from transportation cutbacks due to the virus.
Oil futures were up as much as 4% Wednesday on expectations the group could recommend a broader cut, as well as speculation about a possible drug for the coronavirus. However, the group meeting in Vienna Wednesday is a technical group and will have to recommend to ministers whether they hold an emergency meeting to cut production, and by what amount they should cut.
West Texas Intermediate crude futures ended Wednesday up 2.3% at $50.75 a barrel, after losing some steam as the technical committee's meeting dragged on for hours after it was supposed to end.
"Market expectations have been raised by the holding of this meeting of a substantial cut," said Croft. She said it was unclear, as of Wednesday evening, whether OPEC and Russia would agree to hold a ministers meeting. But if that is the recommendation, a date next week is under active discussion.
"This seems to be in keeping with the recent pattern of OPEC meetings going into overtime as the quest for consensus proves challenging," Croft said. The technical committee cannot vote on a cut, but it can run scenarios on market impact to share with ministers.
"The speculation is that the Saudis are pushing for a minimum of 500,000 barrels," said Kilduff. "The Russians apparently are balking."
OPEC and its non-OPEC partners, including Russia, are currently holding back 1.8 million barrels a day, with Saudi Arabia reducing its output the most. Analysts say Saudi Arabia would have to shoulder the bulk of any further cut, which would likely be for as brief a time period as possible.
Oil demand has fallen sharply, as China cut out all air travel and shut transportation in a number of cities.
Flights to China and now Hong Kong have been canceled. Two cruise ships now sit in Asian ports as passengers potentially exposed to the virus are quarantined, raising concerns about the cruise industry in general.
BP finance chief Brian Gilvary said the economic impact of the coronavirus will reduce oil consumption for the whole year by 300,000 to 500,000 bpd, roughly 0.5% of global demand. Analysts expect the biggest hit to demand to be in the first half of the year.
Platts Analytics worst-case scenario shows a drop of 2.6 million bpd in oil demand in February and a 2 million bpd decline in March. Its best case is for a 900,000 bpd drop in demand in February, and a 650,000 bpd decline in March.
OPEC and Russia have been curbing production since 2016 in an effort to balance the market and prop up prices, but the more than 20% drop in oil prices from this year's January high was largely unexpected and is impacting budgets of oil producing nations.