Oil prices rose in Asian trading on Monday amid expectations of a U.S. rate cut this week, but demand concerns and weak Chinese data capped gains.
November Brent crude futures rose 38 cents, or 0.5%, to $71.99 a barrel at 0700 GMT. October WTI futures rose 49 cents, or 0.7%, to $69.14 a barrel.
Both contracts had closed lower in the previous session, easing concerns about supply disruptions as Gulf of Mexico crude production resumed after Hurricane Francine. The rising data showed the U.S. drilling rig count rose weekly.
Still, about a fifth of crude oil production and 28% of natural gas production in the Gulf of Mexico remained offline after the hurricane.
Markets are focused on the upcoming FOMC policy decision, with traders likely to remain cautious, and prices are still supported by some supply concerns as some capacity remains offline in the Gulf of Mexico.
The Federal Open Market Committee (FOMC) is expected to decide at its September 17-18 meeting.
Fed funds futures are increasingly strengthening investors’ expectations that the U.S. central bank will cut rates by 50 basis points rather than 25 basis points, according to CME FedWatch.
Lower interest rates generally lower the cost of borrowing, which can boost economic activity and boost oil demand.
However, analysts are concerned that an aggressive 50 basis point rate cut could signal underlying recession concerns that would be disastrous for demand. A 50 basis point cut by the Fed would likely signal weakness in the U.S. economy and raise concerns about oil demand.
Weak August data is fueling concerns about Chinese demand. The weak Chinese economic data released over the weekend has dampened market optimism, while the prolonged outlook for low growth in the world’s second-largest economy has added fuel to doubts about oil demand.
Industrial production growth in China, the world’s largest oil importer, fell to a five-month low in August, while retail sales and new home prices weakened further.
Combined with the possibility of a spiral of deflation in China following the decline in industrial production and retail sales growth in August, the current recovery in WTI crude is likely to be unsustainable with key resistance at $72.20/73.15 per barrel.
Oil refinery output also fell for a fifth month, as fuel demand was disappointing and export margins were weak.
