OPEC and non-OPEC ministers will meet in Vienna on March 5-6 amid a whirlwind of negative signals from the market as oil prices have slumped to their lowest levels since December 2018 and demand has been slashed due to the coronavirus outbreak in China.

Both OPEC and the International Energy Agency have lowered their oil demand forecasts for the first half of the year and the IEA now says the prospect of a balanced market in the second half of the year has receded. Amid all the uncertainty, the relationship between Saudi Arabia, the de facto leader of OPEC, and Russia, the dominant party in the non-OPEC alliance, appears to be on shaky ground. OPEC wants a further cut in production to stabilize oil prices while Moscow seems reluctant to cede further market share to the United States and other independent producers not party to the 23-country alliance of OPEC and non-OPEC producers, OPEC+.

IPWeek, a major energy industry event in London that started February 25, was overshadowed by concerns over the coronavirus as dozens of attendees canceled their participation and sideline events planned by oil companies and trading houses were canceled. It is with this sense of gloom, reinforced by negative sentiment in the oil market over demand prospects, that oil ministers will be heading to Vienna.

Still, Saudi Arabia, one of the two main architects of the production cut agreements that have been in place since 2016, is putting on a brave face. Senior Saudi officials have said privately that they did not want to call an emergency meeting of OPEC ministers as the impact of the outbreak in China began to manifest in the oil market because they wanted to avoid the impression of panic over what they see as a transient issue. One Saudi official has said that he believes the situation will normalize before the second quarter.

Nevertheless, the oil producers have other problems to contend with. The market remains awash with oil despite the loss of nearly all of Libya’s production and curtailed output from Iran and Venezuela due to sanctions. More production is expected to come online from non-OPEC producers, namely the United States, Norway, Canada, and Iraq. With demand weakened by the slowdown in China, the world’s largest oil importer, the numbers will not add up unless OPEC takes action to curb supply further, with or without Russia and the other 10 producers party to the Charter of Cooperation that formalized the 2016 agreement that created OPEC+.

Speaking in Riyadh on February 25, Saudi Minister of Energy Prince Abdulaziz bin Salman dismissed talk of strains with Russia, saying that communication was ongoing with Moscow. Russian Energy Minister Alexander Novak “is positively engaged in talks,” he told reporters.

However, there has been internal debate in Russian political circles in the wake of a recent Cabinet reshuffle and some doubts expressed by Russian oil companies as to whether ceding more market share to U.S. and other producers not party to the production cut agreement with OPEC was in Russia’s best interests. However, the exceptional circumstances that the oil producers face collectively may prove too compelling to ignore. The signal coming from senior Saudi officials is that the OPEC+ agreement reached in December 2019 to deepen production cuts to 1.7 million barrels per day from 1.2 mb/d, with Saudi Arabia volunteering an additional output reduction of 400,000 b/d, will be extended for the next two quarters. An advisory committee led by Saudi Arabia and Russia met in Vienna on February 7 as oil prices were showing signs of strain and recommended that the group cut an extra 600,000 b/d in the second quarter to counter the expected drop in demand.

Oil prices have plunged in recent weeks, shedding nearly $15 per barrel since January to trade at just above $50/bbl on February 25 on the back of selling pressure. Market analysts have indicated that a fall below $50 would signal a drop into bearish territory. Failure by OPEC+ to take action would likely hasten a further decline in oil prices. New coronavirus cases reported in Iran, South Korea, and Italy contributed to the negative sentiment and uncertainty that has gripped markets since the start of the year.

According to the IEA’s February Oil Market Report, global oil demand has been “hit hard” by the coronavirus outbreak and the shutdown of China’s economy. The IEA expects demand will fall by 435,000 b/d year-on-year in the first quarter, highlighting that this marked the first quarterly contraction in more than 10 years. The IEA also cut its 2020 growth forecast by 365,000 b/d to 825,000 b/d, the lowest since 2011.

World oil output, meanwhile, was largely unchanged from a year ago as lower supply from OPEC was offset by a 2.1 mb/d increase in non-OPEC production, according to the IEA. It expects demand for OPEC crude will fall to 27.2 mb/d in the first quarter – nearly 1.7 mb/d below the group’s January production of 28.86 mb/d.

The OPEC+ agreement to drain 1.7 mb/d from markets came into effect on January 1. Even without the coronavirus outbreak, market fundamentals were not favorable with a supply overhang of some 1 mb/d expected in the first quarter, according to the IEA’s analysis. This is despite the loss of more than 1 mb/d of Libyan oil production, the continued slump in Iranian oil exports due to sanctions, and disruption to production in Nigeria.

OPEC, in its February Monthly Oil Market Report, also revised down its demand forecast for 2019 and 2020, by 0.02 mb/d and 0.23 mb/d respectively from its January forecast, citing the outbreak of the coronavirus as the major factor behind the revision. OPEC also expects sharply lower demand for OPEC oil in 2020 at 29.3 mb/d, around 1.3 mb/d below 2019, due to what it said was the expected impact on Chinese demand and, by extension, global oil demand.

Saudi Arabia appears to be in favor of a further cut in production. The kingdom, along with a few Gulf allies like the United Arab Emirates and Kuwait, may shoulder such a burden to prevent a meltdown in markets that are already under strain. The three producers have discussed collectively reducing their production by 300,000 b/d but this is likely to be mooted if others do not go along.

They may not be pushing the panic button yet, but OPEC ministers are bracing for tough negotiations in Vienna to convince Russia to stay on board what has proved to be a successful alliance in the face of relentless growth in U.S. shale oil production.