Oil prices inched higher in Asian trade on Monday, buoyed by a weaker dollar as investors anticipated an interest rate cut by the Federal Reserve later in the week. However, concerns about slowing demand, exacerbated by weak economic data from China, and increased U.S. production limited gains.
Market holidays in China and Japan also contributed to lower trading volumes. Crude oil futures expiring in November rose 0.2% to $71.75 a barrel, while Brent crude rose 0.3% to $67.94 a barrel by 21:40 ET (01:40 GMT).
Rate Cuts in Focus Ahead of Fed Meeting
The prospect of a rate cut by the Federal Reserve provided support for oil prices, with market participants anticipating the central bank to initiate an easing cycle. There is uncertainty, however, regarding whether the cut will be 25 or 50 basis points.
Lower interest rates are generally seen as positive for economic growth, which could help sustain U.S. fuel demand in the coming months.
Weaker Chinese Economic Data Raises Concerns
Chinese economic data released over the weekend revealed further signs of economic weakness in the world's largest oil importer. Both industrial production and retail sales missed expectations, while fixed-asset investment rose and GDP growth fell.
Analysts anticipate that Beijing will implement additional stimulus measures to support economic growth, but they still expect GDP to fall short of the government's 5% target in the third quarter. The concerns over China's economic slowdown prompted both OPEC and the IEA to lower their forecasts for oil demand growth this year.
While oil prices hit near three-year lows last week due to these concerns, they did experience a slight rebound.
Analysis:
The rise in oil prices in Asian trade was driven by expectations of a Federal Reserve interest rate cut, which could stimulate economic growth and support U.S. fuel demand. However, concerns about slowing demand from China, the world's largest oil importer, continue to weigh on market sentiment. The weakening economic data from China has prompted organizations like OPEC and the IEA to lower their forecasts for oil demand growth, leading to increased volatility in oil prices. Investors should monitor developments in the U.S. monetary policy and Chinese economic indicators to gauge the future direction of oil prices and make informed investment decisions.