Oil prices rose nearly 2% on Monday, weighed down by ongoing disruptions in US Gulf oil infrastructure, which followed new data from China that eased persistent concerns about demand. Investors are also looking forward to a possible reduction in US interest rates later this week.
By 1315 GMT, Brent crude futures for November rose $1.40, or 1.96%, to $73.01 a barrel. Meanwhile, U.S. crude futures for October rose $1.60, or 2.33%, to $70.25 a barrel.
The market is expected to remain cautious until the Federal Reserve announces its interest rate decision on Wednesday, Reuters quoted Phillip Nova analyst Priyanka Sachdeva as saying.
Sachdeva further added that supply concerns are supporting the prices as some production capacity in the Gulf of Mexico is still shut down.
What is affecting crude oil prices?
The market remains cautious ahead of the Federal Reserve's interest rate decision on Wednesday.
Traders are increasingly leaning toward a 50 basis point rate cut by the Fed rather than a 25 basis point cut, as indicated by the CME FedWatch tool, which tracks fed funds futures.
Typically, lower interest rates reduce the cost of borrowing, which boosts economic activity and increases demand for oil.
Reuters quoted OANDA market analyst Calvin Wong as saying that a 50 basis point interest rate cut by the Federal Reserve could be a sign of underlying weakness in the US economy, raising concerns about future oil demand.
Industrial output growth in China, the world's biggest oil importer, fell to a five-month low in August, dragging further on a drop in retail sales and new home prices.
Additionally, the country's oil refinery output declined for the fifth consecutive month due to weak fuel demand and lower export margins.
Last week, both Brent and WTI crude prices rose by about 1%, yet they are still well below their average prices for August, which were $78.88 and $75.43 per barrel, respectively. This decline was influenced by concerns about demand that emerged at the beginning of the month.
(With inputs from Reuters)