Oil Prices Surge Amid Global Supply Shocks and Rate Cut Speculation

Highlights:

• Oil Price Surge: At the time of writing, US crude futures rose 1.6% to $71.41 per barrel, and Brent crude climbed 1.3% to $73.70 per barrel, driven by supply disruptions and rate cut expectations.
• Supply Disruptions: Over 12% of US Gulf of Mexico crude output is offline due to Hurricane Francine, and geopolitical tensions in the Middle East and Libya's reduced exports have further tightened supply.
• Rate Cut Speculation: Investors anticipate a Federal Reserve rate cut, which could boost oil demand and weaken the US dollar, potentially leading to further price increases.

Supply Disruptions Drive Prices Up

Oil prices have seen a notable increase, surging by a dollar per barrel on Tuesday (Wednesday AEST), primarily due to significant supply disruptions and expectations of a potential US Federal Reserve rate cut. At the time of writing, US crude futures climbed by $1.10, or 1.6%, to $71.41 per barrel, while Brent crude futures rose by 95 cents, or 1.3%, to $73.70 per barrel. These prices represent the highest levels for both contracts this month.

Hurricane Impact and Middle East Tensions

Over 12% of the crude output from the US Gulf of Mexico has been shut down following Hurricane Francine, contributing to the rise in oil prices in four of the last five sessions. In addition, renewed tensions in the Middle East have further supported the price hike. A recent incident in Lebanon, where militant group Hezbollah vowed retaliation against Israel after deadly detonations, has added to the geopolitical uncertainty.

Libyan Export Struggles and Federal Reserve Rate Cut Hopes

Supply disruptions in Libya have also played a role, as ongoing conflicts between rival factions have reduced oil output and exports. Despite a threefold increase in Libyan crude exports to 550,000 barrels per day last week, this figure is still half of the previous month’s exports. Investors are also hopeful that a widely anticipated rate cut by the Federal Reserve could stimulate demand in the US, the world's top oil-consuming nation. Fed funds futures indicate a 69% chance of a 50 basis points cut, potentially weakening the US dollar and boosting oil prices further.

Upcoming EIA Report and Market Outlook

The market remains on edge, awaiting the US Energy Information Administration's official report, expected to provide further clarity on the current state of oil inventories and future trends.

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