Oil prices rose 2 per cent on Monday on the impact of Hurricane Francine on Gulf of Mexico production, offsetting concerns about Chinese demand ahead of the US Federal Reserve's interest rate decision this week.
Brent crude for November rose $1.35 (1.89 per cent) to $72.96 per barrel, while US crude for October rose $1.7 (2.48 per cent) to $70.35 per barrel. About 20 per cent of crude oil production and 28 per cent of natural gas production in the Gulf of Mexico remained offline after the hurricane, according to the US offshore energy regulator.
Matt Smith, oil analyst at Kpler, commented that ‘there are still remnants of the storm,’ and that the impact is being felt more in production than in refining, pushing prices higher. However, the market remains cautious ahead of the Federal Reserve's interest rate decision on Wednesday.
Traders are betting on a 50 basis point cut rather than 25, according to CME's FedWatch tool. Lower interest rates typically lower the cost of borrowing, which can boost economic activity and increase oil demand. However, a 50 basis point cut could also signal weakness in the US economy and raise concerns about oil demand, according to Kelvin Wong, an analyst at OANDA.
Weak Chinese economic data over the weekend weighed on market sentiment, and the long-term low growth outlook for the world's second-largest economy reinforced doubts about oil demand, according to Yeap Jun Rong, market strategist at IG.