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Oil Climbs on Middle East Escalation Fears, US Fed Rate Cut 

A chemical/oil tanker (L) passes a container ship at the Port of Los Angeles on September 20, 2024 in Los Angeles, California. (Getty Images North America / AFP)
A chemical/oil tanker (L) passes a container ship at the Port of Los Angeles on September 20, 2024 in Los Angeles, California. (Getty Images North America / AFP)
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Oil Climbs on Middle East Escalation Fears, US Fed Rate Cut 

A chemical/oil tanker (L) passes a container ship at the Port of Los Angeles on September 20, 2024 in Los Angeles, California. (Getty Images North America / AFP)
A chemical/oil tanker (L) passes a container ship at the Port of Los Angeles on September 20, 2024 in Los Angeles, California. (Getty Images North America / AFP)

Oil prices rose on Monday, buoyed by concerns that heightened conflict in the Middle East may curtail regional supply and expectations last week's outsized US interest rate cut will support demand.

Brent crude futures for November were up 22 cents, or 0.3% at $74.71 a barrel at 0705 GMT. US crude futures for November were up 26 cents, or 0.4%, at $71.26.

Both contracts rose in the previous session on support from the US interest rate cut and a dip in US supply in the aftermath of Hurricane Francine. Oil prices climbed last week for a second week.

A softer economic outlook from top consumers China and the US capped further gains.

"Geopolitical tensions in the Middle East have edged up a notch between Israel and Hezbollah, which could leave oil prices well-supported on the risks of a wider regional conflict," said Yeap Jun Rong, market strategist at IG.

"However, price gains have been somewhat more measured, which may reflect some reservations over the actual impact on oil supplies, given that the Middle East conflict has been dragging for some time now with little disruptions so far."

The Israeli military launched its most widespread wave of air strikes against Iran-backed Hezbollah, simultaneously targeting Lebanon's south, eastern Bekaa valley and northern region near Syria in nearly a year of conflict.

The latest attacks came amid some of the heaviest cross-border exchanges of fire in a conflict raging alongside the war between Israel and Hamas in Gaza.

The conflict has escalated sharply in the past week after thousands of pagers and walkie-talkies used by Hezbollah members exploded. The attack was widely blamed on Israel, which has not confirmed or denied responsibility.

While both oil benchmarks rose more than 4% last week on the back of the US rate cut, weaker demand sentiment in top oil importer China is capping the upswing, said Priyanka Sachdeva, senior market analyst at Phillip Nova, in a note.

"The demand for fuel is still up in the air," she said, adding that the US rate cut "raised concerns that the Fed may have envisioned ailing labor markets".

Last Wednesday, the US Federal Reserve cut interest rates by half a percentage point, a larger decrease in borrowing costs than many expected.

Interest rate cuts typically boost economic activity and energy demand, but analysts and market participants are concerned the central bank may see a slowing job market.

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China Launches Late Stimulus Push to Meet 2024 Growth Target

FILE PHOTO: A worker works on a building under construction in Beijing's Central Business District (CBD), China July 14, 2024. REUTERS/Tingshu Wang/File Photo
FILE PHOTO: A worker works on a building under construction in Beijing's Central Business District (CBD), China July 14, 2024. REUTERS/Tingshu Wang/File Photo
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China Launches Late Stimulus Push to Meet 2024 Growth Target

FILE PHOTO: A worker works on a building under construction in Beijing's Central Business District (CBD), China July 14, 2024. REUTERS/Tingshu Wang/File Photo
FILE PHOTO: A worker works on a building under construction in Beijing's Central Business District (CBD), China July 14, 2024. REUTERS/Tingshu Wang/File Photo

China's central bank on Friday lowered interest rates and injected liquidity into the banking system as Beijing assembled a last-ditch stimulus assault to pull economic growth back towards this year's roughly 5% target, Reuters reported.
More fiscal measures are expected to be announced before China's week-long holidays starting on Oct. 1, after a meeting of the Communist Party's top leaders showed an increased sense of urgency about mounting economic headwinds.
On the heels of the Politburo huddle, China plans to issue special sovereign bonds worth about 2 trillion yuan ($284.43 billion) this year as part of fresh fiscal stimulus, two sources with knowledge of the matter have told Reuters.
Capital Economics chief Asia Economist Mark Williams estimates the package "would lift annual output by 0.4% relative to what it would otherwise have been."
"It's late in the year, but a new package of this size that was implemented soon should be enough to deliver growth in line with the 'around 5%' target," he said.
Chinese stocks are on track for the best week since 2008 on stimulus expectations.
The world's second-largest economy faces strong deflationary pressures due to a sharp property market downturn and frail consumer confidence, which have exposed its over-reliance on exports in an increasingly tense global trade environment.
A wide range of economic data in recent months has missed forecasts, raising concerns among economists that the growth target was at risk and that a longer-term structural slowdown could be in play.
On Friday, data showed industrial profits swinging back to a sharp contraction in August.
"We believe the persistent growth weakness has hit policymakers' pain threshold," Goldman Sachs analysts said in a note.
As flagged on Tuesday by Governor Pan Gongsheng, the People's Bank of China on Friday trimmed the amount of cash that banks must hold as reserves, known as the reserve requirement ratio (RRR), by 50 basis points, the second such reduction this year.
The move is expected to release 1 trillion yuan ($142.5 billion) in liquidity into the banking system and was accompanied by a cut in the benchmark interest rate on seven-day reverse repurchase agreements by 20 bps to 1.50%. The cuts take effect on Friday and Pan, in rare forward-looking remarks, left the door open to another RRR reduction later this year.

Given weak credit demand from households and businesses, investors are more focused on the fiscal measures that are widely expected to be announced in coming days.
Reuters reported on Thursday that 1 trillion yuan due to be raised via special bonds will be used to increase subsidies for a consumer goods replacement program and for the upgrade of large-scale business equipment.
They will also be used to provide a monthly allowance of about 800 yuan, or $114, per child to all households with two or more children, excluding the first child.
China aims to raise another 1 trillion yuan via a separate special sovereign debt issuance to help local governments tackle their debt problems.
Bloomberg News reported on Thursday that China is also considering the injection up to 1 trillion yuan of capital into its biggest state banks.
Most of China's fiscal stimulus still goes into investment, but returns are dwindling and the spending has saddled local governments with $13 trillion in debt.
The looming fiscal measures would mark a slight shift towards stimulating consumption, a direction Beijing has said for more than a decade that it wants to take but has made little progress on.
China's household spending is less than 40% of annual economic output, some 20 percentage points below the global average. Investment, by comparison, is 20 points above but has been fueling much more debt than growth.
The politburo also pledged to stabilize the troubled real estate market, saying the government should expand a white list of housing projects that can receive further financing and revitalize idle land.
The September meeting is not usually a forum for discussing the economy, which suggests growing anxiety among officials.
"The 'shock and awe' strategy could be meant to jumpstart the markets and boost confidence," Nomura analysts said in a note.
"But eventually it is still necessary for Beijing to introduce well thought policies to address many of the deep-rooted problems, particularly regarding how to stabilize the property sector."