Oil edges higher as traders await Fed rate decision
The expectation of a rate cut this week supports oil, but persistent demand worries cap gains
16 September 2024 - 07:41
byTrixie Yap
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Singapore — Oil prices edged up in early trade on Monday amid the expectation of a US interest rate cut this week, though gains were capped by weaker China data and persistent demand worries.
Brent crude futures for November were up 3c at $71.64 a barrel at 4.02am GMT. US crude futures for October were up 16c, or 0.2%, at $68.81 a barrel.
Both contracts had settled lower in the previous session, with concerns about supply disruptions easing as Gulf of Mexico crude production resumed after Hurricane Francine and as rising data showed a weekly rise in US rig count.
Still, nearly a fifth of crude oil production and 28% of natural gas output in the Gulf of Mexico remain offline in the hurricane’s aftermath.
“Markets are focused on upcoming FOMC [Federal open market committee] policy decisions and traders are likely to stay cautious,” said Phillip Nova senior market analyst Priyanka Sachdeva, adding that prices are still supported by some supply worries given the offline capacity in Gulf of Mexico.
A key factor that will dominate the market this week is how aggressive a rate cut the committee will deliver after its September 17-18 meeting. Fed fund futures show investors are increasingly betting the US central bank will cut by 50 basis points (bps) instead of 25bps, according to CME FedWatch.
Lower interest rates will reduce the cost of borrowing, which can boost economic activity and lift demand for oil.
“While a cut is priced in, the uncertainty is whether we get a 25bp or 50bp cut. A 50bp cut could be slightly bearish for oil as it may raise 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 curbed production.
“Demand fears have left speculators increasingly bearish towards the oil market,” said ING analysts, adding that the ICE Brent market is seeing speculators with net short trading positions for the first time.
Meanwhile, the US dollar remained steady after Republican presidential candidate Donald Trump was declared safe after what the FBI said appeared to be a second assassination attempt outside his golf course in Florida.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Oil edges higher as traders await Fed rate decision
The expectation of a rate cut this week supports oil, but persistent demand worries cap gains
Singapore — Oil prices edged up in early trade on Monday amid the expectation of a US interest rate cut this week, though gains were capped by weaker China data and persistent demand worries.
Brent crude futures for November were up 3c at $71.64 a barrel at 4.02am GMT. US crude futures for October were up 16c, or 0.2%, at $68.81 a barrel.
Both contracts had settled lower in the previous session, with concerns about supply disruptions easing as Gulf of Mexico crude production resumed after Hurricane Francine and as rising data showed a weekly rise in US rig count.
Still, nearly a fifth of crude oil production and 28% of natural gas output in the Gulf of Mexico remain offline in the hurricane’s aftermath.
“Markets are focused on upcoming FOMC [Federal open market committee] policy decisions and traders are likely to stay cautious,” said Phillip Nova senior market analyst Priyanka Sachdeva, adding that prices are still supported by some supply worries given the offline capacity in Gulf of Mexico.
A key factor that will dominate the market this week is how aggressive a rate cut the committee will deliver after its September 17-18 meeting. Fed fund futures show investors are increasingly betting the US central bank will cut by 50 basis points (bps) instead of 25bps, according to CME FedWatch.
Lower interest rates will reduce the cost of borrowing, which can boost economic activity and lift demand for oil.
“While a cut is priced in, the uncertainty is whether we get a 25bp or 50bp cut. A 50bp cut could be slightly bearish for oil as it may raise 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 curbed production.
“Demand fears have left speculators increasingly bearish towards the oil market,” said ING analysts, adding that the ICE Brent market is seeing speculators with net short trading positions for the first time.
Meanwhile, the US dollar remained steady after Republican presidential candidate Donald Trump was declared safe after what the FBI said appeared to be a second assassination attempt outside his golf course in Florida.
Reuters
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