Oil Prices Rise Amid Supply Disruptions and Fed Rate Cut Expectations

By Shariq Khan

NEW YORK (Reuters) – Oil prices increased by a dollar a barrel on Tuesday due to mounting supply disruptions and expectations of increased demand if the U.S. Federal Reserve lowers borrowing costs this week, which is widely anticipated.

Both oil contracts reached their highest prices this month. U.S. crude futures rose by $1.10 (1.6%) to $71.41, while Brent crude futures increased by 95 cents (1.3%) to settle at $73.70 per barrel.

Over 12% of crude output from the U.S. Gulf of Mexico was offline following Hurricane Francine last week. This contributed to oil prices rising in four out of the last five sessions, marking a rebound after Brent crude hit its lowest price in nearly three years last Tuesday.

Analysts at AEGIS Hedging noted that renewed tensions in the Middle East also supported prices. The militant group Hezbollah vowed to retaliate against Israel after explosions in Lebanon killed at least eight and injured nearly 3,000, including fighters and Iran's envoy to Beirut. Israel has not commented on the incident.

Supply disruptions from Libya added to the upward pressure on prices. A conflict between rival factions over central bank control has led to lower oil output and exports. Although Libyan crude exports tripled last week to about 550,000 barrels per day, this is still half of last month's exports of over 1 million barrels per day.

Investors are optimistic that the Fed's anticipated rate cut could revitalize demand in the U.S., the world's top oil-consuming nation. Market expectations indicate a 69% chance that the central bank will decrease rates by 50 basis points, which could weaken the U.S. dollar and boost oil and other dollar-denominated commodities, according to independent energy analyst Matias Togni.

Additionally, signs of improving demand in China persist. Despite a turbulent economy affecting demand, the country's oil imports are nearing their highest levels this year at over 11 million barrels per day this month.

Oil prices remained relatively stable following reports from the American Petroleum Institute indicated that both oil and fuel stockpiles increased last week. Analysts expect a decline in oil stockpiles by about 500,000 barrels, with the U.S. Energy Information Administration's official report scheduled for Wednesday at 10:30 a.m. ET.