Oil heads for weekly gain as OPEC+ considers output cut

LONDON, Sept 30 (Reuters): Oil prices were on track for their first weekly gain in five on Friday, underpinned by the possibility that OPEC+ will agree to cut crude output when it meets on Oct. 5.

Brent crude futures for November, which expire on Friday, fell by 24 cents, or 0.27%, to $88.25 a barrel by 1236 GMT. The more active December contract was down 79 cents at $86.39.

U.S. West Texas Intermediate (WTI) crude futures fell 73 cents, or 0.9%, to $80.50.

Both contracts rose by more than $1 earlier in the session but later fell by $1 as European equities pared gains and on a strong U.S. dollar, UBS analyst Giovanni Staunovo said.

"Price swings have become the norm as market players juggle worries over the global economy and the prospect of tightening oil supplies," said Stephen Brennock of oil broker PVM.

While the dollar has dropped from 20-year highs earlier in the week, it rose with early U.S. trading. A stronger greenback makes dollar-denominated oil more expensive for buyers holding other currencies, reducing demand for the commodity.

Brent and WTI are still set for a weekly gain of about 2%. It would be the first weekly rise since August and follow nine-month lows hit this week.

The market has seen support from the prospect of the Organization of the Petroleum Exporting Countries (OPEC) and its allies considering cutting production quotas by between 500,000 and 1 million barrels per day (bpd) at their Oct. 5 meeting.

"A deteriorating crude demand outlook won't allow oil to rally until energy traders are confident that OPEC+ will slash output," senior OANDA analyst Edward Moya said.

Analysts expect a production cut because demand fears linked to a possible global economic slowdown and rising interest rates have weighed on crude prices.

Brent and WTI prices are likely to finish the third quarter with a chunky 23% decline.

"Expect oil prices to receive a supportive kick up the backside next week," PVM's Brennock said.

Analysts also expect buying to lift as Russia prepares to annex four Ukrainian regions to Russia on Friday in a move that could force Western nations to strengthen sanctions against Moscow.

European Union countries reached an initial agreement on what would be the bloc's eighth round of sanctions against Russia for waging war against Ukraine, three diplomatic sources told Reuters on Friday.