Oil Prices Rise as Focus Shifts to Fed Rate Cuts and Francine Disruption

Oil prices experienced a slight increase on Tuesday, supported by expectations of interest rate cuts and supply interruptions caused by Hurricane Francine.

As of 08:10 ET (12:10 GMT), crude oil climbed 0.2% to $72.88 a barrel, while Brent crude rose 0.3% to $69.24 a barrel.

Supply Interruptions Due to Hurricane Francine

U.S. authorities reported that over 12% of crude oil production and 16% of natural gas output in the Gulf of Mexico remain offline due to the effects of Hurricane Francine. These ongoing production disruptions may lead to tighter supplies in the U.S., providing potential support for crude prices.

However, oil producers in the affected region have been making efforts to restore production in recent days, suggesting that the disruptions may be temporary.

Focus on Federal Reserve Meeting and Interest Rate Cuts

This week, attention is primarily on the upcoming Federal Reserve meeting on Wednesday, where a reduction in interest rates is widely anticipated. Recent trends indicate a growing expectation for a larger cut of 50 basis points, as the Fed is expected to initiate an easing cycle.

This outlook has impacted the dollar negatively, resulting in a favorable environment for oil prices. The possibility of lower interest rates could enhance oil demand, as reduced borrowing costs are likely to stimulate economic growth.

Concerns Over Demand Limit Price Increases

Despite the upward momentum, oil prices face pressures from ongoing worries about weakening demand, particularly from China, the world’s largest oil importer. Last week, oil prices fell to near three-year lows as concerns about China’s economic performance prompted both the Organization of Petroleum Exporting Countries and the International Energy Agency to revise their demand forecasts downward.

Recent weak economic indicators from China have heightened fears of slowing growth in the region, which is grappling with deflation. Additionally, Chinese oil refinery output decreased for the fifth consecutive month in August due to declining fuel demand and thin export margins.

Rising anxieties about a potential trade conflict between China and Western nations have further negatively affected sentiment toward the Chinese economy.