Brent crude futures for November were up 3 cents at $71.64 a barrel and U.S. crude futures for October were up 16 cents, or 0.2%, at $68.81 a barrel
Oil prices rose in early trade on Monday amid expectations of a U.S. interest rate cut this week, though gains were capped by weaker China data and persistent demand concerns.
Brent crude futures for November were up 3 cents at $71.64 a barrel at 0402 GMT. U.S. crude futures for October were up 16 cents, or 0.2%, at $68.81 a barrel.
Both contracts had settled lower in the previous session, with worries about supply disruptions easing as Gulf of Mexico crude production resumed following Hurricane Francine and as data showed a weekly increase in U.S. rig count.
Still, almost a fifth of crude oil production and 28% of natural gas output in the Gulf of Mexico remain offline in the hurricane’s aftermath.
Markets are focused on upcoming FOMC (Federal Open Market Committee) policy decisions and traders are likely to stay cautious, said Phillip Nova senior market analyst Priyanka Sachdeva, adding that prices are still supported by some supply concerns given the offline capacity in Gulf of Mexico.
A key factor that will dominate the market this week is how aggressive a rate cut the FOMC will deliver following its September 17-18 meeting. Fed fund futures show investors are increasingly betting the U.S. Fed will cut by 50 bps instead of 25 basis points, shows the CME FedWatch.
Lower interest rates will reduce the cost of borrowing, which can boost economic activity and lift demand for oil.
While a cut is priced in, the uncertainty is whether we get a 25 basis point or 50 basis point cut. A 50 basis point cut could be slightly bearish for oil as it may raise recession concerns, ING analysts said in a client note.
In China, the biggest oil importer, industrial output growth slowed to a five-month low in August, while retail sales and new home prices weakened further. Oil refinery output also declined for a fifth month as disappointing fuel demand and weak export margins curbed production.
Demand concerns have left speculators increasingly bearish towards the oil market, said ING analysts, adding that the ICE Brent market is seeing speculators with net short trading positions for the first time.
