Oil prices edge higher as market eyes US Fed decision

WEB DESK: Global oil prices increased in Asian trading on Monday, as investors anticipated a potential interest rate cut by the US Federal Reserve later this week. However, the gains were limited by ongoing concerns about demand and disappointing economic data from China.

As of 0700 GMT, Brent crude for November delivery was up 38 cents, or 0.5 per cent, trading at $71.99 per barrel. Meanwhile, US crude for October delivery rose by 49 cents, or 0.7 per cent, to $69.14 per barrel.

Both oil contracts had decreased in the previous session. This decline was due to easing worries about supply disruptions, as crude production in the Gulf of Mexico resumed after Hurricane Francine, and the number of active US oil rigs increased.

Despite this, nearly 20 per cent of crude oil production and 28 per cent of natural gas output in the Gulf of Mexico are still offline in the aftermath of the hurricane.

Phillip Nova senior market analyst Priyanka Sachdeva noted that “markets are focused on the upcoming Federal Open Market Committee (FOMC) policy decisions, and traders are likely to remain cautious.” She also mentioned that oil prices are still being supported by supply concerns due to the ongoing offline capacity in the Gulf of Mexico.

The FOMC is set to make its decision during its meeting from September 17-18. According to CME FedWatch, investors are increasingly betting that the US central bank will cut interest rates by 50 basis points (bps) rather than 25 bps.

Lower interest rates generally reduce borrowing costs, which can stimulate economic activity and increase oil demand. However, analysts worry that a 50 bps rate cut might signal deeper recession fears, which could negatively impact oil demand.

OANDA senior market analyst Kelvin Wong said in an email, “A 50 bps cut from the Fed would likely indicate weakness in the US economy, raising concerns about oil demand.”

Market optimism was also dampened by weaker economic data from China released over the weekend. The slowdown in China’s industrial output growth to a five-month low in August, coupled with weaker retail sales and new home prices, raised doubts about future oil demand. IG market strategist Yeap Jun Rong said in an email that the lower growth outlook in China reinforces these concerns.

Wong added that “the rebound in WTI crude oil is likely unsustainable, with key resistance at $72.20-$73.15 per barrel.” Additionally, oil refinery output fell for the fifth consecutive month due to weak fuel demand and low export margins.

Read next: When will 12th gen Toyota Corolla launch in Pakistan?