Oil prices edged higher in early Monday trading, driven by expectations of a U.S. interest rate cut this week. However, the gains were tempered by weak economic data from China and ongoing concerns about global demand.
Brent crude futures for November rose 3 cents to $71.64 per barrel as of 0402 GMT, while U.S. crude futures for October climbed 16 cents, or 0.2%, to $68.81 per barrel.
Both contracts had closed lower in the previous session, as fears of supply disruptions eased with the resumption of Gulf of Mexico crude production following Hurricane Francine. Data also showed an increase in U.S. oil rigs last week.
Despite the recovery, nearly 20% of crude oil production and 28% of natural gas output in the Gulf of Mexico remain offline in the wake of the hurricane.
“Markets are focused on the upcoming FOMC policy decisions, and traders are likely to remain cautious,” said Priyanka Sachdeva, a senior market analyst at Phillip Nova. She added that prices continue to be supported by concerns over the still offline capacity in the Gulf of Mexico.
Fed Meeting in Focus
A major market focus this week is the upcoming Federal Open Market Committee (FOMC) meeting, where investors are anticipating a rate cut. Fed fund futures indicate growing bets on a more substantial 50 basis point cut instead of the 25 bps reduction that had been widely expected, according to CME FedWatch.
Lower interest rates can reduce borrowing costs, potentially boosting economic activity and increasing demand for oil.
“While a cut is already priced in, the key uncertainty is whether it will be 25 bps or 50 bps. A 50 bps cut could be slightly bearish for oil as it might heighten recession fears,” ING analysts noted in a client briefing.
Weak Data from China
In China, the world’s largest oil importer, industrial output growth slowed to a five-month low in August, and retail sales, along with new home prices, weakened further. Oil refinery output fell for the fifth consecutive month as lackluster fuel demand and weak export margins curbed production.
“Demand concerns have made speculators increasingly bearish towards the oil market,” ING analysts added, noting that speculators are holding net short positions in the ICE Brent market for the first time.
U.S. Dollar Steady Amid Political Tensions
Meanwhile, the U.S. dollar remained steady following news that Republican presidential candidate Donald Trump was safe after what the FBI described as a second assassination attempt outside his golf course in Florida.
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