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Offline capacity in Gulf of Mexico still supports prices

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Markets await decision on Fed rate cut

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Poor August data stokes China demand worries

(Updates prices at 1207 GMT)

By Robert Harvey

LONDON, Sept 16 (Reuters) - Oil prices edged higher on

Monday as ongoing disruption to U.S. Gulf oil infrastructure

balanced persistent demand concerns after a fresh round of

Chinese data while investors await a likely cut to U.S. interest

rates this week.

Brent crude futures for November were up 46 cents,

or 0.64%, at $72.07 a barrel by 1207 GMT. U.S. crude futures

for October rose 52 cents, or 0.76%, to $69.17.

The market is likely to remain cautious until the Federal

Reserve makes its interest rate decision on Wednesday, said

Phillip Nova analyst Priyanka Sachdeva, adding that prices are

still supported by some supply worries given that some capacity

remains offline in the Gulf of Mexico.

Traders are increasingly betting on rate cut of 50 basis

points (bps) rather than 25 bps, as shown by the CME FedWatch

tool that tracks fed fund futures.

Lower interest rates typically reduce the cost of borrowing,

which can boost economic activity and lift demand for oil.

However, a cut of 50 bps could also signal weakness in the

U.S. economy, which could raise concerns over oil demand, said

OANDA analyst Kelvin Wong.

Saxo Bank analyst Ole Hansen, meanwhile, said activity is

likely to remain light ahead of the Fed meeting, adding that the

outcome "looks like a coin toss between 25 and 50 bps".

Nearly a fifth of crude oil production and 28% of natural

gas output in the Gulf of Mexico remains offline in the

aftermath of Hurricane Francine.

Weaker Chinese economic data released over the weekend

dampened market sentiment, with the low-for-longer growth

outlook in the world's second-largest economy reinforcing doubts

over oil demand, IG market strategist Yeap Jun Rong said in an

email.

Industrial output growth in China, the world's top oil

importer, slowed to a five-month low in August while retail

sales and new home prices weakened further.

Oil refinery output also fell for a fifth month as weak fuel

demand and export margins curbed production.

Brent and WTI each gained about 1% last week but remain

comfortably below their August averages of $78.88 and $75.43 a

barrel respectively after a price slide around the start of this

month driven in part by demand concerns.