OPEC Scrambles to React to Falling Oil Demand From China

Officials of some of the world’s largest oil producers are scrambling to stem a sharp fall in prices over concerns that the growing coronavirus epidemic will reduce demand from China, the biggest importer.

Over the weekend, officials from the Organization of the Petroleum Exporting Countries, as well as Russia, agreed to meet on Tuesday and Wednesday in Vienna, where OPEC has its headquarters, to discuss the situation in the oil markets, according to two people briefed on the plans.

The big producers are also discussing whether to schedule an emergency ministerial-level meeting this month, moving up a gathering planned for early March. On the agenda would be production cuts of up to one million barrels a day, or about 1 percent of world supplies, according to a person familiar with the matter.

“They are absolutely trying to put a floor under prices,” said Amrita Sen, chief oil analyst at Energy Aspects, a market research firm.

The price of Brent crude, the international benchmark, has fallen about 19 percent over the last month to less than $55 a barrel, the lowest in more than a year. The plunge has undercut the impact of the carefully orchestrated production cuts that OPEC announced at its December meeting in Vienna.

West Texas intermediate, the American benchmark, entered a bear market on Monday after it fell more than 20 percent from its January high, settling at $50.11.

OPEC seems unlikely to stem the price declines soon. Ms. Sen said China was already reducing its orders for March from Saudi Arabia, the de facto leader of OPEC and the world’s largest oil exporter. It is too late to cut February orders.

China is Saudi Arabia’s most important customer and, along with other Asian countries like India and South Korea, is increasingly vital for the big oil producers around the Persian Gulf. Any slowing of these economies will sap demand for oil, hitting prices and the revenues that OPEC governments depend on.

OPEC is likely to make some cuts, Ms. Sen said, but that may not be enough to bolster skittish markets.

“People are fearing the worst,” she said.

Chinese oil demand already appears to have crashed as the lockdown of Wuhan and other cities and overall fear curb air travel, driving, trucking and factory use. Gary Ross, chief executive of Black Gold Investors, a New York trading and investment firm, estimates that Chinese oil demand over the last two weeks has been down around 2.5 million barrels a day, or close to 20 percent compared with the previous year.

Mr. Ross said that cutbacks in Chinese oil purchases were likely to ripple across the world, causing supplies to build up in the United States and Europe.

At least for the short term, he said, the oil market has entered “a vicious circle of selling pressure with no hope in sight.”

There is much at stake for the big OPEC producers and Russia, as many of them depend on sales to China, particularly now that the United States has turned from major importer to exporter, largely because of shale production.

In December, before the crisis hit, China imported nearly 11 million barrels of oil, comparable to the output of a major producer like Russia. A little more than half of Chinese supplies come from OPEC countries. Saudi Arabia was China’s largest supplier last year, averaging about 1.7 million barrels a day, or close to a quarter of Saudi exports, according to Energy Aspects. Russia was a close second, with Angola, Brazil and Iraq also feeding large volumes of crude to the Chinese economy.

Analysts say it might not be easy for OPEC to come up with an effective response. For one, it is difficult to predict how long the coronavirus crisis will last and how much damage it will do to the world economy. Also, output curbs on the order of 2.5 million barrels a day would be unusual for OPEC, because such a deep cut would require producers to absorb serious pain. It is also difficult to judge when Libyan volumes, now down about one million barrels a day because of political infighting, will return.

The OPEC countries were already selling oil at relatively low volumes after the December agreement. For instance, OPEC exports for January were down about 700,000 barrels a day from the previous month, according to Kpler, a firm that tracks petroleum exports.

OPEC seemed to be trying to prop up the market with talk of a meeting, analysts say, but this tactic did not work. Attendees at this week’s technical meeting are likely to hash out the supply and demand numbers in preparation for a decision on cuts. But it will probably be left to top leaders like President Vladimir V. Putin of Russia and Crown Prince Mohammed bin Salman of Saudi Arabia to sign off on final production cuts.

Most of the big producers seem amenable to a high-level emergency gathering, but it may not be called until they agree on what to do.

“The worst thing would be to call a meeting and then not do something,” said Bhushan Bahree, an OPEC analyst at IHS Markit, a research firm.