Oil Prices Rise Due to Hurricane Effects Ahead of US Rate Decision – Reuters

By Nicole Jao

NEW YORK (Reuters) – Oil prices experienced an uptick on Monday, as the lingering effects of Hurricane Francine on production in the U.S. Gulf of Mexico outweighed ongoing concerns about demand from China, especially with the Federal Reserve’s interest rate decision approaching this week.

Futures for November settled at $72.75 a barrel, marking an increase of $1.14, or 1.59%. Meanwhile, October futures closed at $70.09, up $1.44, or 2.1%.

"We’ve still got the remnants of the storm," said Matt Smith, lead oil analyst at Kpler. "The impact is more on the production side than on refining, which leans slightly bullish."

Currently, over 12% of crude production and 16% of natural gas output in the U.S. Gulf of Mexico remain offline due to the aftermath of Hurricane Francine, as reported by the U.S. Bureau of Safety and Environmental Enforcement.

However, overall market sentiment remained cautious ahead of the Federal Reserve’s interest rate decision scheduled for Wednesday.

Traders are increasingly leaning towards a 50 basis point rate cut rather than a 25 basis point reduction, as indicated by futures tracking the Fed’s interest rates.

Typically, lower interest rates decrease borrowing costs, potentially stimulating economic activity and increasing demand for oil.

"A quarter-percent Fed rate cut could raise traders’ concerns about the pace of oil demand growth," noted Clay Seigle, an oil market strategist.

Seigle also suggested that the market could experience conflicting trends if the Fed opts for a more aggressive rate cut. "Bulls will feel more confident about resilient oil demand with a soft landing, while bears, pushing spreads into contango, will welcome reduced physical carrying costs," he explained.

Contango occurs when front-month contracts are priced lower than those for future months.

Weak economic data from China over the weekend has negatively impacted market sentiment, with a prolonged low-growth outlook in the world’s second-largest economy stirring doubts about oil demand, stated IG market strategist Yeap Jun Rong.

In August, China’s industrial output growth hit a five-month low, while retail sales and new home prices declined further. The country’s oil refinery output also saw a decrease for the fifth consecutive month, driven by sluggish fuel demand and lower export margins.

Both Brent and WTI crude oil prices rose by about 1% last week but remain significantly below their August averages of $78.88 and $75.43 per barrel, respectively, following a price decline early this month fueled by demand concerns.