By Adedapo Adesanya
Oil prices increased on Monday as the ongoing impact of Hurricane Francine on output in the US Gulf of Mexico offset persistent Chinese demand concerns ahead of this week’s Federal Reserve interest rate cut decision.
Brent crude futures settled at $72.75 a barrel after it went up by $1.14 or 1.59 per cent and the US West Texas Intermediate (WTI) crude futures traded at $70.09 per barrel after chalking up $1.44 or 2.1 per cent.
The market latched onto news from the US Bureau of Safety and Environmental Enforcement (BSEE) which noted that more than 12 per cent of crude production and 16 per cent of natural gas output in the U.S. Gulf of Mexico remained offline in the aftermath of Hurricane Francine.
Oil production in Libya, a member of the Organisation of the Petroleum Exporting Countries (OPEC), also remains compromised after the breakdown in talks between rival governments in the country, which added to bullish drivers.
However, the market remained cautious ahead of the Federal Reserve’s interest rate decision on Wednesday with many expecting the rate cut of 50 basis points rather than 25 basis points.
Lower interest rates typically reduce the cost of borrowing, which can boost economic activity and lift oil demand.
Market analysts noted that the market may see conflicting trends if the US central bank delivers a more aggressive rate cut.
News about a possible new attempt on the life of Republican presidential candidate Donald Trump could have had an impact on prices but due to lesser publicity of the incident and the fast reaction of the Secret Service, the reports did not make waves, pushing the Dollar higher or lower, or affecting oil prices.
Weaker Chinese economic data over the weekend dampened market sentiment, with the low-for-longer growth outlook in the world’s second-largest economy reinforcing doubts over oil demand.
Industrial output figures released over the weekend showed a growth rate of 4.5 per cent for August, which was translated as not good enough by the market just as retail sales and new home prices weakened further.
China’s oil refinery output also fell for a fifth month as weak fuel demand and export margins curbed production.
This may force the hands of the Chinese government to take similar steps it took last year in October when it boosted the state budget deficit to support growth.