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Law360 (March 5, 2020, 6:26 PM EST ) The Organization of the Petroleum Exporting Countries on Thursday proposed steep production cuts in response to sliding demand, and global oil prices continued their 2020 slide as coronavirus concerns weigh down an already-sluggish oil and gas industry.
OPEC's member countries late Thursday proposed to slash their production by 1.5 million barrels of oil per day through the end of 2020, citing forecasts that global oil demand growth for the year will plunge by over 50% in part due to the spread of COVID-19 disease caused by the coronavirus.
Earlier in the day, OPEC had proposed that the production cuts only last through the middle of the year.
The plummeting demand has sent the U.S. oil benchmark price down to approximately $46 a barrel, a one-quarter drop since the start of the year. The global Brent oil price benchmark price is at approximately $50 a barrel, a 22% drop since 2020 began. At a Thursday press conference with U.S. Energy Secretary Dan Brouillette, International Energy Agency executive director Fatih Birol indicated that oil demand forecasts could contract further.
"The coronavirus is affecting oil markets disproportionately, much more seriously than the global economy," said Birol, who added that his organization will release a new forecast next week. "We have revised our global oil demand expectations significantly."
Travel restrictions and a reduction in global transportation due to COVID-19 are helping fuel the decline in oil demand. Birol said that for example, the aviation sector accounts for just 1% of global gross domestic product, yet accounts for 8% of global oil demand.
Experts also say there's growing concern about global supply chains for energy industry materials and equipment.
Brouillette maintained a positive outlook, saying that to this point, COVID-19 is having "some marginal impacts within the domestic U.S."
"We believe that our energy markets are well-prepared," Brouillette said at Thursday's press conference. "The fundamentals of the international energy landscape are strong, which make our energy markets strong."
But the latest price slump comes at an inopportune time for the industry. It's already a chilly environment for making oil and gas deals, as capital and debt markets remain wary of new drilling investments amid continued oil price volatility. Meanwhile, drilling bankruptcies are starting to tick up again.
Some drillers have recently looked to raise additional funds by swapping high-yield unsecured bonds with fast-approaching maturities for debt that won't mature for several years. But they're swallowing more painful terms to kick their long-term debt further down the road as high-yield bondholders are demanding greater returns and more protection against potential bankruptcy losses.
--Editing by Abbie Sarfo.
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