Oil rises as production in US remains affected

Oil maintained its upward trajectory as Tropical Storm Francine continued to weigh on production in the US, along with the expectations of a rate cut by the Federal Reserve this week. 

Brent crude was trading up 0.43% at $73.06 a barrel at 08:06 am Makkah time. WTI crude rose 0.66% to $70.55 a barrel. 

More than 12% of crude oil production and 16% of natural gas production in the US Gulf of Mexico region remained offline following Hurricane Francine, which hit the region last week, the US Environmental Protection Agency said in a statement on Sept 16. 

The continued disruption to US production helped mitigate concerns about slowing Chinese oil demand, while investors turned their attention to the Federal Reserve meeting, which begins today and ends tomorrow. 

The Fed is expected to cut interest rates when it announces its monetary policy statement, but the division of estimates over the amount of the cut—50 basis points or 25 points—may cause some variation in the reactions of traders in the oil market, Reuters reported, quoting Clay Seigle, an Oil Market Strategist. 

A rate cut typically lowers borrowing costs, boosting economic activity and demand for oil, but Seigle said that a 25 basis point cut could raise investor concerns about the pace of demand growth. 

He added that a 50-point cut could result in mixed reactions from market participants, as optimistic traders are expected to feel confident about the future of demand and the soft landing of the US economy. 

Meanwhile, bears may push the spread between the most active futures contract now and the next month's contract higher, meaning that contracts with a longer expiration date become cheaper, due to lower transport costs for oil.