Oil prices posted their first quarterly loss in two years at the end of a volatile trading week on Friday, as investors weighed up possible output cuts by the Opec+ super group of crude producers against the weakening global economic outlook and increasing inflation.
Brent, the benchmark for two thirds of the world's oil, settled 2.34 per cent lower at $85.14. West Texas Intermediate, the gauge that tracks US crude, fell more than 2.14 per cent to $79.49 a barrel.
Both benchmarks made slight gains for the week, their first in five weeks.
However, their quarterly losses were more pronounced, with Brent falling about 22 per cent in the three months to the end of September, and WTI shedding nearly 25 per cent.
“It has been over two years since oil posted a quarterly loss, but a miserable quarter filled with a doom and gloom global economic outlook meant crude’s losses were going to be severe,” said Edward Moya, senior market analyst at Oanda.
“The crude demand outlook is not getting any favours from economic data or corporate reports.”
Oil prices have taken a battering in recent weeks, pulled down by a strong US dollar and a worsening global economic outlook.
Falling prices are a concern for Opec+ producers, who are meeting in Vienna on Wednesday to discuss market dynamics and are likely to agree on further output cuts to support prices.
“Opec+ will have an easy job … but oil prices won’t catch a bid until energy traders are confident an aggressive reduction of output at around 1 million bpd [barrels per day] will be delivered,” Mr Moya said.
“Oil will get tighter in the winter and now that most of the crude demand destruction has been priced in, prices should stabilise going into the year-end.”
The US Dollar Index, a measure of the value of the greenback against a weighted basket of major currencies, dropped last week, supporting oil prices.
However, with a market lacking catalysts to rally higher, a potential cut needs to be substantial to change sentiment, according to Edward Bell, senior director of market economics at Emirates NBD.
“Any cut would need to be meaningfully larger than the 100,000 bpd agreed for October if it is to shift sentiment in the market,” Mr Bell said.
Most brokerages have said that Opec+ has to make oil cuts between 500,000 bpd and 1 million bpd to keep Brent above $90 a barrel.
“To address prevailing oil demand concerns, stop the negative price momentum and set a floor to prices, we think the group has to announce a production cut of at least 0.5 million bpd over the coming days,” UBS analysts Giovanni Staunovo and Wayne Gordon said in a research note earlier in the week.
Global recession fears have continued to weigh on the market as the world's central banks tighten monetary policy to curb soaring inflation.
The Organisation for Economic Co-operation and Development (OECD) expects global growth to fall to 2.2 per cent in 2023, compared with its 2022 estimate of 3 per cent.
“GDP growth has stalled in many economies and economic indicators point to an extended slowdown,” OECD secretary general Mathias Cormann said in a report.