Oil prices edged up 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 worries.
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 concerns about supply disruptions easing as Gulf of Mexico crude production resumed following Hurricane Francine and as rising data showed a weekly rise in U.S. rig count.
Still, nearly 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 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 worries 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 Federal Open Market Committee (FOMC) will deliver following its Sept. 17-18 meeting. Fed fund futures show investors are increasingly betting the U.S. central bank will cut by 50 basis points instead of 25 bps, according to 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 25bp or 50bp cut. A 50bp cut could be slightly bearish for oil as it may raise recession fears,” 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 fell for a fifth month as disappointing fuel demand and weak export margins curbed production.
“Demand fears 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.
Meanwhile, the U.S. dollar remained steady after Republican presidential candidate Donald Trump was declared safe following what the FBI said appeared to be a second assassination attempt outside his golf course in Florida.
(Reporting by Emily Chow and Trixie Yap; Editing by Sonali Paul and Christopher Cushing)