Oil Prices Edge Higher as U.S. Interest Rate Cut and Supply Disruptions Offset Weak Chinese Demand

Key Highlights:

• Oil prices saw a modest rise following a U.S. interest rate cut and supply disruptions due to Hurricane Francine.

• Brent crude futures for November increased by 0.21% to $74.65 a barrel, while U.S. crude futures for November rose by 0.30% to $71.21.

• Weak demand from China, the world's largest oil importer, continues to cap the upside for oil prices.

Oil prices experienced slight gains on Monday, with traders reacting to last week's U.S. Federal Reserve interest rate cut and a decrease in U.S. crude supply following Hurricane Francine. This came amid weaker-than-expected demand from China, the top global oil importer.

Brent crude futures for November edged up by 16 cents (0.21%) to $74.65 a barrel,

Source: Marketwatch

while U.S. crude futures for November rose by 21 cents (0.30%) to $71.21 by 1011 GMT.

Source: ig

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• The U.S. Federal Reserve cut interest rates by 50 basis points, boosting oil prices and risky assets.

• The Fed signaled potential additional rate cuts before year-end, further supporting oil benchmarks, which recorded over 4% gains the previous week.

• Charalampos Pissouros, senior investment analyst at XM, mentioned the rate cut provided a buffer to oil prices despite weak demand from China.

• Concerns over a slowing economy in the Eurozone and the U.S. also contributed to market caution.

• Oil prices remain rangebound, according to Harry Tchilinguirian, head of research at Onyx Capital Group.

• Investors are focusing on upcoming flash PMI releases in Europe and the U.S. for further economic insights.

• A survey showed that Eurozone business activity contracted sharply, with services stagnating and the manufacturing downturn accelerating.

• A disappointing PMI could lead to downward pressure on oil prices.

• A weaker economic outlook in China continues to suppress further gains in oil prices.

• Giovanni Staunovo, UBS analyst, noted that initial hopes for additional Chinese monetary stimulus lifted market sentiment but were dampened by weak European PMI data.

• Staunovo also highlighted expectations of a significant U.S. crude inventory draw due to elevated exports, which could support oil prices this week.

• Heightened conflict in the Middle East raises concerns over potential disruptions to regional oil supplies.

• The Israeli military launched extensive airstrikes against Hezbollah, targeting southern Lebanon, the eastern Bekaa Valley, and northern regions near Syria.

• Mazen Salhab, market strategist at BDSwiss, warned that the ongoing conflict between Israel and Hezbollah could result in broader disruptions, adding upward pressure on oil prices.

Conclusion

Oil prices are reacting to a blend of factors including U.S. monetary policy, supply constraints, and weakening demand from key markets like China and Europe. As geopolitical tensions in the Middle East escalate, and with economic indicators in focus, oil prices are expected to remain volatile in the short term.