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Oil prices rose about 2 percent on Monday after some production outages in the U.S. Gulf of Mexico offset lingering demand concerns following fresh Chinese data, while investors awaited a decision on U.S. interest rates this week.
Brent crude futures for November delivery rose $1.46, or 1.96%, to $73.01 a barrel. U.S. crude futures for October delivery rose $1.60, or 2.33%, to $70.25 a barrel.
The market will likely remain cautious until the Federal Reserve’s interest rate decision on Wednesday, said Priyanka Sachdeva, a market analyst at Philip Nova, adding that prices remain supported by supply concerns as some production capacity in the Gulf of Mexico remains out of service.
Traders increasingly expect a 50 basis point rate cut rather than a 25 basis point cut, according to the CME Group’s FedWatch service, which tracks Fed funds futures.
Lowering interest rates would lower the cost of borrowing, which in turn would boost economic activity and increase demand for oil.
Kelvin Wong, senior market analyst at OANDA, said a 50 basis point rate cut could signal weakness in the US economy, which would add to oil demand concerns.
Nearly 20% of crude oil production and 28% of natural gas production in the Gulf of Mexico remain shut in the wake of Hurricane Frances.
Weaker Chinese economic data over the weekend dampened market sentiment, with expectations of a prolonged slowdown in the world’s second-largest economy adding to doubts about oil demand, IG market strategist Yip Junrong said in an email.
Industrial output growth in China, the world’s largest oil importer, slowed to a five-month low in August, while retail sales and new home prices weakened further.
Refinery output also fell for the fifth straight month, as weak fuel demand and weak export margins curbed production.
Brent and WTI crude prices rose about 1 percent each last week, but are still well below their August averages of $78.88 and $75.43 a barrel, respectively, after prices fell earlier this month due in part to demand concerns.
