Oil moves higher as traders eye production cuts

Oil production in Azerbaijan

An OPEC+ technical panel has recommended a provisional cut in oil output of 600,000 barrels per day (bpd) in response to the coronavirus' impact on energy demand as it awaits Russia's final position on the proposal, three sources said.

The Joint Technical Committee (JTC) is not a decision-making body but does advise the Organization of the Petroleum Exporting Countries and allies led by Russia, a grouping known as OPEC+.

OPEC and its allies led by Russia produce over 40 percent of global oil and the new proposed cut would constitute around 0.6 percent of global supply.

Brent lost 23 cents, or 0.3%, to trade at $55.05 per barrel, while U.S. West Texas Intermediate gained 20 cents, or 0.4%, to settle at $50.95 per barrel.

OPEC+ ministers have not decided on further action, but the recommendation on Thursday by all the members of the JTC, which includes Saudi Arabia and Russia, would signal progress towards a decision.

"The recommendation is for a cut of 600,000 bpd. Russia has asked for more time for consultations," one of the sources said.

Another OPEC source said the proposed output cut of 600,000 bpd, if agreed by all members, will start immediately and continue until June.

"The 600,000 bpd has taken into consideration the expected return of Libya oil production and all scenarios such as oil demand growth elsewhere," the second source said, adding that the proposed cut was enough to counter the expected drop in oil demand due to the coronavirus.

The OPEC+ ministers have yet to decide on whether to bring forward their upcoming policy meeting to February from March 5-6, the sources said.

The JTC panel extended its meeting into a third day on Thursday after Russia voiced its opposition to a deeper supply cut and was instead suggesting an extension of current cuts.

In previous years, Russia has regularly signalled opposition to OPEC before ultimately agreeing on policy during formal meetings.

Oil prices have fallen by more than $11 a barrel this year to $55, alarming producers.

Saudi Arabia, OPEC's de facto leader, and other OPEC members are worried that the continued spread of the virus could hit oil demand and prices further, the sources said.

Steps that OPEC+ is weighing include further output cuts, extending cuts due to expire in March, and moving forward its planned policy meeting.

OPEC sources said the meeting was unlikely to be brought forward unless there was general agreement on the need to reduce output further.

OPEC+ is currently cutting output by 1.7 million bpd.

While OPEC countries such as Iraq, OPEC's second-largest producer, have voiced support for any agreement that would stabilise the market, Russian Energy Minister Alexander Novak said on Tuesday he could not say for sure whether it was time to tighten output further.

The economic slowdown resulting from the virus outbreak is expected to reduce 2020 global demand growth by 300,000-500,000 bpd, or roughly 0.5%, BP Chief Financial Officer Brian Gilvary said on Tuesday.