Oil rises 2% from three-year low after traders bet on demand growth ahead of US Fed rate cut; Brent at $73/bbl

International crude oil prices rose by a dollar per barrel or nearly two per cent on Tuesday, September 17, as supply disruptions mounted and Wall Street traders bet oil demand will grow if the US Federal Reserve lowers its borrowing costs in its monetary policy decision on Wednesday, as is widely expected.

US crude oil futures last gained $1.31, or 1.9 per cent, to $71.40 during Tuesday's session. Benchmark Brent crude futures last rose by $1, or 1.4 per cent, to $73.75 per barrel. Back home, crude oil futures last gained 1.6 per cent higher at ₹5,981 per barrel on the multi commodity exchange (MCX).

Also Read: Brent crude crashes 25% YTD on soft demand: Should you buy OMC stocks? D-Street experts pick ONGC, Oil India

What's lifting crude oil prices from three-year lows?

-More than 12 per cent of crude output from the US Gulf of Mexico was offline after Hurricane Francine last week, lifting oil prices in three of the past four sessions, a rebound after Brent crude futures last Tuesday hit the lowest in nearly three years.

-Analysts noted that crude oil prices have been in recovery mode since last Wednesday, on supply concerns after Hurricane Francine in the US Gulf of Mexico, as well as expectations of lower US crude stockpiles.

-Crude oil prices are drew support from supply disruption in Libya, where a rift between rival factions over control of the central bank has led to lower oil output and exports. Talks led by the United Nations to solve the crisis failed to reach an agreement this week.

-Libyan crude exports rose three-fold last week to about 550,000 barrels per day. That was still half the exports of the Organisation of Petroleum Exporting Countries (OPEC) last month of over one million bpd.

Also Read: Crude View: D-Street experts peg Brent at $75-80 in near-term, Morgan Stanley cuts forecast by $5 on soft demand

-More than 12 per cent of crude output from the US Gulf of Mexico was offline after Hurricane Francine last week, lifting oil prices in three of the past four sessions, a rebound after Brent crude futures last Tuesday hit the lowest in nearly three years.

-Investors also hoped the US Fed's widely anticipated rate cut could revitalize demand in the top oil consuming nation. Fed funds futures showed markets pricing in a 69 per cent chance that the central bank will cut rates by 50 basis points.

-Market participants will keep watching China, where a turbulent economy has heavily dented demand from the top oil importer. Money managers were net short on Brent crude oil for the first time on record last week, reflecting those concerns. China's oil refinery output fell for a fifth month in August amid declining fuel demand and weak export margins.

Also Read: Oil crashes to 33-month low after OPEC+ slashes demand forecasts, Brent sinks below $70 for first time since Dec 2021

Where are prices headed?

Analysts noted that crude oil prices increased by approximately 1.50 per cent, marking the second consecutive session of gains, driven by supply concerns. The aftermath of Hurricane Francine continues to disrupt production, with more than 12 per cent of crude and 16 per cent of natural gas output in the US Gulf of Mexico still offline as of Monday. 

‘"For crude oil, chart momentum looks sideways with resistance at 5,830/ 5,910, while on the downside support holds at 5,750, below which prices may test 5,670/ 5,600,’' said Pranav Mer, Vice President, EBG - Commodity & Currency Research, JM Financial Services Ltd.

Also Read: OPEC+ to pause planned October oil output hike of 180,000 bpd for two months after Brent crashes to 14-month low

Libya has shown signs of decreasing supplies, with a significant drop in recent oil exports. Further support for oil prices came from growing expectations of a larger 50-basis-point rate cut by the US central bank, which could stimulate economic activity and, by extension, oil demand. However, these gains were tempered by weaker-than-expected demand growth from China, the world’s largest oil consumer. 

"Disappointing economic data from the country has raised concerns about the sluggish pace of its economic recovery. We anticipate crude oil prices will remain volatile. Oil is expected to find support at $68.80-$68.10, with resistance at $69.90-$70.50. In INR terms, support is expected around ₹5,830- ₹5,770, with resistance at ₹5,960- ₹6,030,'' said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.

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