Oil Prices Rise Amid Supply Disruptions and Potential US Interest Rate Cuts

By Shariq Khan

NEW YORK (Reuters) – Oil prices increased by a dollar per barrel on Tuesday as supply disruptions continued and traders anticipated a boost in demand should the U.S. Federal Reserve cut borrowing costs this week, a move that is widely expected.

Both oil contracts closed at their highest levels for the month. West Texas Intermediate (WTI) crude rose by $1.10, or 1.6%, to $71.41, while Brent crude increased by 95 cents, or 1.3%, settling at $73.70 per barrel.

Approximately 12% of crude production from the U.S. Gulf of Mexico has been offline following Hurricane Francine last week, which has contributed to rising oil prices in four of the last five trading sessions. This marks a rebound after Brent crude fell to its lowest level in nearly three years last Tuesday.

Prices also received support from escalating tensions in the Middle East, according to analysts at AEGIS Hedging. The militant group Hezbollah has vowed to retaliate against Israel following explosions that occurred across Lebanon on Tuesday, resulting in at least eight fatalities and almost 3,000 injuries, including fighters and Iran’s envoy to Beirut. Israel has not commented on the incident.

Additionally, disruptions in Libya’s oil output and exports have contributed to the price increase. A disagreement among rival factions over control of the central bank has led to decreased oil production, as pointed out by Rystad analysts. Efforts by the United Nations to mediate a resolution to the crisis this week have not yielded any agreements.

Libyan crude exports reportedly tripled last week to approximately 550,000 barrels per day, as per shipping data reviewed by Reuters. However, this figure remains only half of the country’s export levels from the previous month, which exceeded 1 million barrels per day.

Investors are also looking forward to the Federal Reserve’s anticipated interest rate cut, which they hope could stimulate demand in the largest oil-consuming country. Fed funds futures indicate a 69% probability that the central bank will reduce rates by 50 basis points. Such a cut could weaken the U.S. dollar, making oil and other commodities priced in dollars more affordable, according to independent energy analyst Matias Togni.

There are emerging indications of improved demand in China, where a previously turbulent economy has significantly impacted oil consumption this year. China’s imports this month are nearing a peak of over 11 million barrels per day.

Meanwhile, oil prices remained largely stable following reports from market sources indicating that both crude and fuel stockpiles had increased last week. Analysts project a decline in oil stockpiles of around 500,000 barrels, according to a Reuters poll. The official U.S. Energy Information Administration report is scheduled for release on Wednesday at 10:30 a.m. ET.