Oil News: Futures Rise on Rate Cut Hopes, But Chinese Demand Remains Weak

Crude Oil Futures Hold Steady Despite Investor Uncertainty

Light crude oil futures are trading higher on Monday, although prices remain inside Friday’s range, suggesting a cautious market. Despite last week’s bullish price reversal, resistance levels at $71.02 to $73.44 remain a challenge. On the downside, traders seem to be defending a value zone between $66.66 and $64.45, with support solidifying at $65.27. This week, the focus has shifted from hurricane-related supply concerns to the Federal Reserve’s interest rate outlook.

At 10:12 GMT, Light Crude Oil Futures are trading $69.05, up $0.40 or +0.58%.

Fed Rate Cut Expectations Drive Market Sentiment

Crude prices are seeing slight upward momentum as traders anticipate a U.S. Federal Reserve rate cut at this week’s Federal Open Market Committee (FOMC) meeting. Speculation has grown that the Fed may cut by 50 basis points (bps), as indicated by CME’s FedWatch tool.

A larger-than-expected rate cut could stimulate economic growth and lift oil demand. However, if the Fed signals economic weakness with this move, it could curb demand prospects, offsetting potential gains.

Gulf of Mexico Supply Concerns Ease

Supply disruptions in the Gulf of Mexico, which were triggered by Hurricane Francine, are gradually resolving. Though nearly 20% of crude oil production and 28% of natural gas output in the Gulf remain offline, resumed production has eased fears of significant supply shortages.

Furthermore, data from Baker Hughes showed an increase in the U.S. rig count for the first time in five weeks, adding eight rigs and bringing the total to 590. Despite the increase, the overall rig count remains 8% lower than a year ago.

Weak Chinese Data Damps Optimism

Weaker-than-expected economic data from China, the world’s largest oil importer, is weighing on the market’s sentiment. Chinese industrial output slowed to a five-month low in August, while retail sales and home prices also weakened.

These signs of slower growth, alongside concerns of deflation, raise doubts about sustained demand for crude oil from China. The downbeat data is capping the upside potential of crude prices, despite supply concerns and hopes for a U.S. rate cut.

Market Forecast

Despite the recent recovery, crude oil prices face strong resistance between $71.02 and $73.44, making further upside movement unlikely in the short term.

The focus remains on the upcoming FOMC meeting, where a 50 bps rate cut could lead to increased economic concerns, further limiting demand growth.

Weak demand signals from China and increasing U.S. rig counts also suggest limited bullish momentum. Overall, the market outlook remains bearish in the short term, with prices likely to remain under pressure.