Oil prices hold steady as investors wait on US interest rate decision

Business a.m.

Oil prices remained relatively stable on Tuesday, as traders kept a close eye on the upcoming Federal Reserve policy meeting and its potential impact on the global economy.

The meeting, which is scheduled to end on Wednesday, has taken center stage in the oil market as investors weigh the implications of the Fed’s decisions on monetary policy.

At the same time, concerns about weakened demand from China, a major importer of crude oil, limited potential gains in the oil market, creating a cautious and choppy trading environment.

Despite lingering fears over China’s oil demand and the looming Fed meeting, crude prices were supported by the expectation of declining U.S. oil inventories and concerns over Hurricane Francine’s impact on domestic production.

Brent crude futures for November edged up slightly by nine cents, or 0.1 percent, to $72.84 a barrel, while U.S. crude futures for October climbed 23 cents, or 0.3 percent, to $70.32.

Li Xing Gan, an expert in financial markets at Exness, commented on the fluctuating oil prices, stating that the ongoing tug-of-war between supply and demand continues to impact the market.

Gan  further explained that the upcoming decision from the Federal Reserve is causing uncertainty in the oil market, as traders try to anticipate the potential effect of the interest rate cut on global economic activity and, consequently, on oil demand.

Oil refinery output in China continued to decline in August, reaching its fifth straight month of decrease, according to government data released on Saturday. This decline reflects the weakening domestic fuel demand and unfavourable export margins in one of the world’s largest oil importers.

Meanwhile, the ongoing impact of Hurricane Francine on U.S. crude production in the Gulf of Mexico also contributed to oil price support. 

As the Bureau of Safety and Environmental Enforcement (BSEE) reported recently, approximately 12 percent of crude production and 16 p[ercent of natural gas output in the region were still offline, suggesting that supply disruptions could persist for some time.

Charalampos Pissouros, senior investment analyst at XM, offered his insights on the current oil price situation, attributing the recent recovery to the disruption of supply caused by Hurricane Francine and expectations of lower U.S. crude inventories.

However, he also suggested that oil prices may be experiencing a pullback due to the temporary nature of these variables, noting that market participants remain concerned about declining global demand, particularly in China.

As the Fed’s meeting looms, the expectation of a rate cut has taken center stage, with Fed funds futures indicating a high likelihood of a 50 basis point reduction in the federal funds rate.

The Fed’s move to embark on an easing cycle, despite inflation remaining stubbornly high, is expected to provide some relief to the economy as the cost of borrowing decreases.