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Coronavirus impact: Opec may cut production marginally, says Moody’s Investors Service

Updated : February 17, 2020 02:38:41 IST

The impact of coronavirus would be felt mostly on sectors that are directly linked to the consumer such as retail, hospitality and transportation and there could be a spillover effect on commodities like oil, says Vikas Halan, Senior Vice President - Corporate Finance Group at Moody's Investors Service.

Speaking about the coronavirus’ impact on crude demand and prices, he said: “In terms of uncertainty with respect to the outbreak, a lot of it has already been factored in, provided there are no further surprises on data. There has been some backlog of demand that will start flowing in and as demand picks up, we will see that impact getting factored in after the coronavirus outbreak subsides.”

According to Halan, the growth in demand will depend on how quickly the situation is contained and activity resumes in China.

“Q1 is being largely written off by a lot of these sectors, we just saw Singapore announcing its quarterly gross domestic product forecast and for 2020, they have lowered the range. We would expect similar trends coming across the region where economic activity has come down whether it is tourism or consumption,” he further added.

The market seems to be taking some support from the Organisation of Petroleum Exporting Countries (Opec) as there may be deeper cuts and extension of cuts when Opec and its allies meet in the first week of March.

“Opec will continue to hold on to its production quotas and possibly cut a little bit. I don’t think they are going to cut significantly from where they have cut their production in the last meeting. The view will be that brent oil around $60 per barrel is somewhat within their comfort zone. Overall the urgency to cut production at the Opec level may not be very high if this virus situation is contained,” Halan noted.
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