Oil News: Light Crude Nears Major Moving Averages, Fed Rate Cut Lends Support

Light Crude Futures Eye Key Resistance Levels

Light crude oil futures are trading higher on Monday, building on momentum after last week’s U.S. interest rate cut. Traders are closely watching resistance at the 50% Fibonacci retracement level of $72.21, with potential for a bullish push toward the price cluster around the 50-day moving average at $72.61 and the 200-day moving average at $72.94. Support is firm at the Fibonacci level of $69.79, with a break below likely to trigger a short-term correction.

At 10:09 GMT, Light Crude Oil Futures are trading $71.18, up $0.18 or +0.25%.

Oil Prices Benefit from Fed Rate Cut, US Supply Dip

Oil prices edged higher after the Federal Reserve’s aggressive 50 basis point rate cut last week, which helped stabilize risky assets, including crude oil. Additionally, a temporary reduction in U.S. crude supply, caused by Hurricane Francine, has lent support to the market despite ongoing concerns about weakened demand from China, the world’s largest oil importer.

Last week saw a second consecutive rise in both Brent and West Texas Intermediate (WTI) contracts. According to analysts, the larger-than-expected rate cut has played a pivotal role in boosting oil prices, as it reduced borrowing costs and injected confidence into broader financial markets. However, oil is expected to remain rangebound as market participants weigh other economic indicators.

“Oil looks rangebound despite the uplift to risky asset prices from an outsized policy rate cut by the Fed last week,” said Harry Tchilinguirian, head of research at Onyx Capital Group. He also pointed out that upcoming flash PMI data from Europe and the U.S. will be critical for determining the next move in oil prices.

Weak Economic Data Caps Gains

Despite recent gains, weaker economic data from China and the Eurozone could limit further upside for crude. Eurozone business activity contracted unexpectedly, with the manufacturing sector worsening and services showing no growth. This weak outlook from two of the world’s largest economies has dampened optimism in the oil market.

“There was some hope earlier this morning that additional Chinese monetary stimulus was on the horizon, but the latest PMI out of Europe switched market sentiment from positive to negative,” said UBS analyst Giovanni Staunovo. However, Staunovo expects oil prices to find some support this week due to a large U.S. crude draw, driven by robust export activity.

Geopolitical Tensions Add to Price Support

Another factor supporting oil prices is escalating geopolitical tensions in the Middle East. Over the weekend, Israeli airstrikes targeted Hezbollah positions in Lebanon, raising concerns about potential supply disruptions in the region. Analysts warn that the conflict could escalate further, putting additional upward pressure on oil prices.

“Geopolitical tensions in the Middle East have edged up a notch between Israel and Hezbollah, which could leave oil prices well supported on the risks of a wider regional conflict,” noted Yeap Jun Rong, a strategist at IG Markets.

Market Forecast: Bullish Outlook

With a combination of supply constraints, a larger-than-expected U.S. rate cut, and heightened geopolitical risks, oil prices are expected to maintain a bullish bias in the short term. While weak economic data from China and Europe may prevent a sustained rally, the current support levels and potential for a U.S. crude supply draw should provide upward momentum.

Key resistance around the $72.61 to $72.94 range will be pivotal in determining whether oil can extend gains. Traders should keep a close eye on U.S. PMI data for further directional cues.