Fears of a global recession have caused crude oil prices to fall for most of the quarter that ends today and they are likely to book their first quarterly decline since 2020, according to Bloomberg.
“Oil’s poor quarter is clearly a reflection of an oil market that is losing its tightness as global recession risks surge,” Ed Moya, senior market analyst at Oanda, told Bloomberg. “Energy traders clearly expect drastic action by OPEC+.”
“Amid so much uncertainty, seesaw trade may be common over the next week, unless we get more clarity from OPEC+ sources on the likely size of any adjustment and what it means for previous missed quotas,” another senior oil analyst from Oanda told Reuters.
For the fourth quarter, it seems there’s some upside potential for prices, coming from OPEC. First, reports earlier this week suggested Russia would propose a production cut of 1 million bpd. Then later reports said several large producers in the OPEC+ group had started discussing cuts.
While a production cut from OPEC+ would serve to counter economic pessimism, the effect might not be sustained because OPEC+ is already producing much below its own target: the figure for August was lower than targets by more than 3 million bpd.
In other words, whatever the official production targets are, actual production tends to be much lower, effectively making targets meaningless. The tightness of global oil supply that OPEC officials have been warning about, however, remains very real and about to get potentially more severe after the EU embargo on maritime Russian oil imports enters into effect in December.
Physical demand destruction appears to be the only way to temper prices and a soaring U.S. dollar has done a lot to achieve that, albeit probably inadvertently. Earlier this month, oil prices slumped to the lowest in eight months as the greenback jumped to a two-decade high fuelling stronger recession fears.
By Irina Slav for Oilprice.com
