Oil Prices Climb Amid U.S. Output Concerns and Expected Crude Stockpile Drop

Oil prices extended their gains on Tuesday, supported by production disruptions in the U.S. Gulf of Mexico following Hurricane Francine and expectations of a drop in U.S. crude inventories. The market is also anticipating a positive sentiment shift ahead of this week’s Federal Reserve interest rate decision.

Brent and U.S. Crude Prices Rise

Brent crude futures for November delivery rose by 34 cents, or 0.5%, to $73.09 a barrel, while U.S. crude futures for October delivery climbed 49 cents, or 0.7%, to $70.58 a barrel as of 04:20 GMT. Both contracts had settled higher in the previous session, driven by output concerns and a potentially favorable outcome from the Fed’s meeting.

Hurricane Francine’s Impact on U.S. Production

The ongoing impact of Hurricane Francine has significantly affected U.S. oil production. According to the U.S. Bureau of Safety and Environmental Enforcement (BSEE), over 12% of crude oil production and 16% of natural gas output in the Gulf of Mexico remain offline. This disruption has been a key factor supporting oil prices.

Fed Rate Cut Expectations Boost Market Sentiment

In addition to output concerns, market sentiment has been buoyed by expectations of a Federal Reserve interest rate cut. Fed fund futures indicate a 69% probability of a 50 basis point cut on Wednesday. A lower interest rate is likely to reduce borrowing costs, which could support economic growth and increase oil demand.

U.S. Crude Stockpiles Expected to Decline

Further supporting prices is an anticipated drop in U.S. crude inventories. A Reuters poll suggests that crude stockpiles likely fell by about 200,000 barrels in the week ending September 13, adding further bullish momentum to the market.

China’s Demand Concerns Cap Gains

Despite these positive factors, gains in oil prices have been capped by concerns over weaker-than-expected demand growth in China, the world’s largest crude importer. China’s oil refinery output declined for the fifth consecutive month in August, reflecting reduced fuel demand and weak export margins.

The combination of U.S. output disruptions and global economic concerns, alongside the Fed’s anticipated easing, continues to drive oil market dynamics this week.