Oil gains nearly 2% on hurricane impact, US Fed rate cut expectations; brent crude at $73.01/bbl

Oil prices increased by approximately 2% on Monday, driven by ongoing disruptions to U.S. Gulf oil infrastructure, which offset persistent concerns about demand following new data from China. Investors are also anticipating a potential reduction in U.S. interest rates later this week.

By 1315 GMT, Brent crude futures for November rose by $1.40, or 1.96%, reaching $73.01 a barrel. Meanwhile, U.S. crude futures for October climbed by $1.60, or 2.33%, to $70.25 per barrel.

The market is expected to remain cautious until the Federal Reserve announces its interest rate decision on Wednesday, Phillip Nova analyst Priyanka Sachdeva, was quoted as saying by Reuters.

Sachdeva further noted that prices continue to be supported by supply concerns, as some production capacity remains offline in the Gulf of Mexico.

What’s weighing on crude oil prices?

The market remains cautious ahead of the Federal Reserve’s interest rate decision scheduled for Wednesday.

Traders are increasingly leaning towards a 50 basis point rate cut by the Fed, rather than a 25 basis point reduction, as indicated by the CME FedWatch tool that monitors Fed fund futures.

Typically, lower interest rates decrease borrowing costs, which can stimulate economic activity and increase demand for oil.

A 50 basis point rate cut by the Federal Reserve could indicate underlying weakness in the U.S. economy, which may raise concerns about future oil demand, OANDA market analyst Kelvin Wong, was quoted as saying by Reuters.

China’s industrial output growth, the highest oil importer globally, slowed to a five-month low in August, with further declines in retail sales and new home prices.

Additionally, the country’s oil refinery output decreased for the fifth consecutive month due to weak fuel demand and reduced export margins.

Last week, both Brent and WTI crude prices rose by approximately 1%, yet they remain significantly below their average prices for August, which were $78.88 and $75.43 per barrel, respectively. This decline was influenced by concerns over demand that emerged at the beginning of the month.

(With inputs from Reuters)

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