Oil Prices Increase Amid Rate Cut Hopes and Francine Disruption, Countering Demand Concerns

Oil prices experienced an uptick on Monday, driven by ongoing disruptions in U.S. Gulf oil production and a weakening dollar as investors anticipate an interest rate cut from the Federal Reserve later this week.

As of 08:05 ET (12:05 GMT), crude oil rose 0.7% to $72.11 a barrel, while Brent crude increased 0.8% to $68.30 a barrel.

Focus on Potential Rate Cuts Ahead of Fed Meeting

A softer dollar provided strong support for oil prices as markets prepared for a potential rate cut from the Federal Reserve on Wednesday. The central bank is likely to begin an easing cycle, though traders are divided on whether the cut will be 25 or 50 basis points. Lower interest rates are generally favorable for economic growth, which could bolster U.S. fuel demand in the coming months.

Disruptions in the Gulf of Mexico

The ongoing disruption of production in the Gulf of Mexico, a result of Hurricane Francine, also influenced the market. Reports indicate that nearly 20% of crude oil production and 28% of natural gas output in U.S. Gulf federal waters remain offline. Hurricane Francine made landfall in Louisiana as a Category 2 storm on Wednesday and caused power outages across four southern states.

Mixed Chinese Economic Data Raises Concerns

However, the gains in oil prices were tempered by lingering concerns about slowing demand, particularly following disappointing economic data from China. Key indicators missed expectations, raising alarm about a potential decline in crude demand from the world’s largest oil importer. Analysts at ANZ noted that while they expect the Chinese government to introduce more stimulus measures to support economic growth, third-quarter GDP may fall short of the 5% target.

These concerns prompted both the Organization of Petroleum Exporting Countries and the International Energy Agency to revise downward their forecasts for oil demand growth this year. Additionally, holidays in China and Japan resulted in lower trading volumes.