Oil Prices Start the Week With a Gain on Rate Cut Hopes

Crude oil prices began this week with a gain on expectations that the U.S. Federal Reserve will announce an interest rate cut at its meeting that begins tomorrow and ends Wednesday.

Additional support for prices came from the fact that a solid portion of Gulf of Mexico oil production remains shut in following Hurricane Francine. About 25% of oil production and 28% of natural gas production remain shut in after Francine made landfall last Wednesday in Louisiana.

News about a possible new attempt on the life of Republican presidential candidate Donald Trump could have had an impact on prices but thanks to the much lesser publicity of the incident and the apparently fast reaction of the Secret Service, the reports did not make waves, pushing the dollar higher or lower, or affecting oil prices.

Oil production in Libya also remains compromised after the breakdown in talks between rival governments in the country, which added to bullish drivers.

Even so, gains were modest in evidence of the overwhelming bearish sentiment gripping oil markets.

“We remain in the gradualist camp and expect the Fed to begin cutting by 25 basis points,” ANZ analysts said in a note regarding the upcoming Fed meeting, as quoted by Reuters. Some are even more optimistic, with traders surveyed by CME Group expecting a 59% probability of the Fed cutting rates by between 475 and 500 basis points.

At the same time, the latest economic data from China seems to be more bad news for oil demand. Industrial output figures released over the weekend showed a growth rate of 4.5% for August. For Chinese media, this was proof of steady growth. For Western media, industrial output grew at the slowest pace in five months.

Retail sales in China also grew in August but, again, more weakly than many expected, strengthening the case for more aggressive stimulus, as Reuters termed it. Indeed, Bloomberg quoted Commonwealth Bank of Australia analyst Vivek Dhar as saying that Beijing may do just that, as it did last year in October when it boosted the state budget deficit to support growth.

By Irina Slav for Oilprice.com

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