Oil prices rise on hurricane impact ahead of US rate decision

Oil prices Oil prices rose on Monday as the continued impact of Hurricane Francine on U.S. Gulf of Mexico production offset lingering concerns about Chinese demand ahead of the U.S. Federal Reserve’s decision to cut interest rates this week.

Brent crude futures for November settled at $72.75 a barrel, up $1.14, or 1.59%. U.S. crude futures for October settled at $70.09, up $1.44, or 2.1%.

“We still have the remnants of the storm,” said Matt Smith, senior oil analyst at Kpler. “The impact is bigger on production than on refining. So the situation is tilted a little bit to the upside.”

More than 12% of crude oil production and 16% of natural gas production in the US Gulf of Mexico remained offline following Hurricane Francine, the US Bureau of Safety and Environmental Enforcement (BSEE) said on Monday.

Overall, however, the market remained cautious ahead of the Federal Reserve’s interest rate decision on Wednesday.

Traders are increasingly betting on a Fed rate cut of 50 basis points (bps) rather than 25 bps, as shown by the CME FedWatch tool that tracks Fed funds futures.

Lower interest rates typically reduce the cost of borrowing, which can boost economic activity and increase demand for oil.

“A quarter-point rate cut by the Federal Reserve could heighten traders’ concerns about the pace of oil demand growth,” Clay Seigle, an oil market strategist, said in an email.

The market could see conflicting trends if the Fed implements a more aggressive rate cut, Seigle said.

“Bulls will feel more confident in resilient oil demand with a soft landing, while bears pushing spreads into contango will welcome lower physical transportation costs,” Seigle said.

Contango is when previous month contracts are cheaper than future month contracts.

Weaker Chinese economic data over the weekend weighed on market sentiment, with the prospect of longer-term low growth in the world’s second-largest economy reinforcing concerns about oil demand, IG market strategist Yeap Jun Rong said in an email.

Industrial production growth in Porcelainthe world’s largest oil importer, slowed to a five-month low in August, while 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 held back production.

Brent and WTI each gained about 1% last week but remain comfortably below their August averages of $78.88 and $75.43 a barrel, respectively, after a price drop earlier this month driven in part by concerns about demand.

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