By Jeslyn Lerh

SINGAPORE (Reuters) – Oil prices extended gains on Tuesday as the market eyed U.S. output concerns in the aftermath of Hurricane Francine and expectations of lower U.S. crude stockpiles.

Brent crude futures for November rose 16 cents, or 0.2% at $72.91 a barrel at 0120 GMT. U.S. crude futures for October climbed 34 cents, or 0.5%, at $70.43 a barrel.

Both contracts settled higher in the previous session as the ongoing impact of Hurricane Francine on output in the U.S. Gulf of Mexico countered Chinese demand concerns ahead of this week’s U.S. Federal Reserve interest rate cut decision, which should prove positive for investor sentiment in oil.

More than 12% of crude production and 16% of natural gas output in the U.S. Gulf of Mexico were offline, according to the U.S. Bureau of Safety and Environmental Enforcement (BSEE) on Monday.

The market is keeping a close watch on the upcoming decision by the U.S. Federal Reserve on the interest rate cut. A lower interest rate will reduce the cost of borrowing and can potentially lift oil demand by supporting economic growth.

“Growing expectations of an aggressive rate cut boosted sentiment across the commodities complex,” said ANZ analysts in a note, adding that ongoing supply disruptions also supported oil markets.

Investors also eyed an expected drop in U.S. crude inventories, which likely fell by about 200,000 barrels in the week to Sept. 13, based on a Reuters poll. [EIA/S]

Still, lower-than-expected demand growth in China, the world’s largest crude importer, have capped price gains. China’s oil refinery output fell for a fifth month in August amid declining fuel demand and weak export margins, government data showed on Saturday.

(Reporting by Jeslyn Lerh; Editing by Christian Schmollinger)