Oil price remains volatile following gloomy economic outlook, OPEC cut

(Alliance News) - Brent oil prices were looking for direction on Wednesday after a 13-nation OPEC cartel and its 10 allies decided to cut its production output cut to boost energy prices.

Nonetheless, a doomy economic outlook still seems to weigh on investor sentiment.

A barrel of Brent crude fetched USD94.67 around 1125 BST on Wednesday, up slightly from USD94.17 a barrel at 1125 BST on Tuesday.

By the time of the London market close, Brent oil was quoted at USD92.55 down from USD94.62 late Tuesday.

"Recession fears continue to drive oil lower, and the losses are chipping away at the bounce we saw last week in crude prices," IG market analyst Chris Beauchamp commented.

Energy prices soared after Russia invaded Ukraine earlier this year, which also pushed inflation to decades-high levels across the world.

Nonetheless, prices have fallen in recent months on concerns over dwindling demand and a slowdown in the global economy.

Further, the International Monetary Fund on Tuesday reignited fears about global growth, which poses a threat to energy demand.

Global economic growth is expected to slow further next year, the IMF said, downgrading its forecasts as countries grapple with the fallout from Russia's invasion of Ukraine, spiralling cost-of-living, and economic downturns.

In its latest World Economic Outlook, the IMF trimmed its 2023 global GDP forecast to 2.7%, 0.2 percentage point down from July expectations.

"The IMF's downgrade of global growth predictions has pumped fear into oil markets, with a recession guaranteed to lower demand for the black stuff. On a ten-year view, oil prices are still reasonably elevated, especially when compared to the artificially-low points of the pandemic. So, while consumers may welcome the recent cooling in pricing, there's a long way until the floor can be seen," Hargreaves Lansdown analyst Sophie Lund-Yates commented.

In response to the declining oil price, due to the volatile economic backdrop, OPEC+ decided to reduce output by two million barrels a day from November.

The aggressive cut led to a temporary spike in oil prices. However, it is expected that OPEC might have to introduce another cut soon to keep prices from weakening.

"In addition of course, any further USD strength will prompt more losses in oil and commodity markets generally, so all eyes remain fixed on tomorrow's CPI reading," IG's Beauchamp warned.

By Abby Amoakuh; [email protected]

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