SINGAPORE (Reuters) – Oil prices rose slightly on Monday morning on expectations of a U.S. interest rate cut this week, but the gains were limited by weaker data from China and persistent concerns about demand.
Brent crude futures for November rose 3 cents to $71.64 a barrel by 0402 GMT. U.S. crude futures for October rose 16 cents, or 0.2%, to $68.81 a barrel.
Both contracts had ended lower in the previous session as concerns about supply disruptions eased as crude production resumed in the Gulf of Mexico after Hurricane Francine and as rising data showed the number of U.S. drilling rigs rising weekly.
Still, nearly a fifth of crude oil production and 28 percent of natural gas production in the Gulf of Mexico remains shut down because of the hurricane.
“Markets are focused on the upcoming policy decisions from the FOMC and traders are likely to remain cautious,” said Priyanka Sachdeva, senior market analyst at Phillip Nova. He added that prices are still supported by supply concerns, given offline capacity in the Gulf of Mexico.
A key factor that will dominate markets this week is how aggressive a rate cut the Federal Open Market Committee (FOMC) will make after its Sept. 17-18 meeting will be. Fed fund futures show that investors are increasingly betting on a 50 basis point cut from the 25 basis points by the U.S. central bank, according to CME FedWatch.
Lower interest rates reduce borrowing costs, which can boost economic activity and demand for oil.
“While a cut is priced in, the uncertainty is whether we will get a 25bp or 50bp cut. A 50bp cut could be slightly negative for oil as it could increase recession fears,” ING analysts said in a client note.
In China, the biggest oil importer, industrial output growth slowed to a five-month low in August, while retail sales and new home prices weakened further. Oil refinery output also fell for a fifth month, as disappointing fuel demand and weak export margins constrained production.
“Demand fears have made speculators increasingly pessimistic about the oil market,” ING analysts said, adding that for the first time, speculators are net short on the ICE Brent market.
Meanwhile, the US dollar remained steady after Republican presidential candidate Donald Trump was declared safe following what the FBI said appeared to be a second assassination attempt outside his Florida golf course.
(Reporting by Emily Chow and Trixie Yap; Editing by Sonali Paul and Christopher Cushing)
