Oil Prices Rise Slightly Amid Supply Disruptions and Fed Meeting

Investing.com—Oil prices rose slightly on Tuesday, supported by the prospect of interest rate cuts and supply disruptions caused by Hurricane Francine.

At 08:10 ET (12:10 GMT), Brent oil futures increased by 0.2% to $72.88 a barrel, while West Texas Intermediate crude futures were up 0.3% to $69.24 a barrel.

Supply Disruptions from Hurricane Francine

U.S. authorities reported that over 12% of crude production and 16% of natural gas output in the Gulf of Mexico remained offline following the effects of Hurricane Francine. Extended production disruptions foreshadow tighter supplies within the country, which could uplift crude prices. However, oil producers have been working on restoring production in recent days, indicating that the impact may be short-lived.

Fed Meeting, Interest Rate Cut in Focus

This week's attention is focused on the conclusion of a Federal Reserve meeting on Wednesday, where a cut in interest rates is widely anticipated. Expectations for a larger, 50 basis point cut have increased, with the Fed expected to initiate an easing cycle starting Wednesday. This expectation has weighed down the dollar, subsequently benefiting oil prices. The potential for lower interest rates also suggests a brighter outlook for oil demand, as lower rates promote economic growth.

Demand Fears Limit Oil's Upside

Despite these factors, continued concerns about slowing demand, especially from top importer China, have capped further gains in oil prices. Recent declines in oil prices have brought them near three-year lows, as worries surrounding China led both the Organization of Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA) to revise their demand forecasts downward for the coming years. A spate of weak economic data released over the weekend has heightened fears of slowing growth in China, particularly as the world’s largest oil importer faces deflation. Additionally, Chinese oil refinery output fell for a fifth consecutive month in August due to diminishing fuel demand and weak export margins. The potential for renewed trade tensions between China and the West has further dampened sentiment towards the country.

(Ambar Warrick contributed to this article.)