Oil drops as economic growth concerns offset OPEC+ cuts
LONDON -Oil fell on Monday as concern over the economic impact of the U.S. Federal Reserve potentially raising interest rates and weaker Chinese manufacturing data outweighed support from new OPEC+ supply cuts taking effect this month.
The Fed, which meets on May 2-3, is expected to increase interest rates by another 25 basis points. The U.S. dollar rose against a basket of currencies on Monday, making oil more expensive for other currency holders.
“The prospect of further rate hikes to be announced by the Fed this week is expected to drive an increase in near-term price volatility,” said Baden Moore, head of commodity and carbon strategy at National Australia Bank (NAB).
US Fed expected to hike again despite signs of slowing economy
Brent crude fell $1.64, or 2 percent, to $78.69 a barrel at 0947 GMT, while U.S. West Texas Intermediate (WTI) crude slid $1.66, or 2.2 percent, to trade at $75.12.
“The failure to reach more solid ground above $80.50 in Brent points to continued selling interest amid the well known growth/demand concerns,” said Ole Hansen, head of commodity Strategy at Saxo Bank.
Banking fears have weighed on oil in recent weeks and in what is the third major U.S. institution to fail in two months, United States regulators said on Monday First Republic Bank has been seized and a deal agreed to sell the bank to JPMorgan.
JPMorgan to acquire First Republic Bank assets, assume all deposits
Weak economic data from China was in focus. China’s manufacturing purchasing managers’ index (PMI) declined to 49.2 from 51.9 in March, slipping below the 50-point mark that separates expansion and contraction in activity on a monthly basis.
Some support came from voluntary output cuts of around 1.16 million barrels per day by members of the Organization of the Petroleum Exporting Countries and allies including Russia, a group known as OPEC+, which take effect from May.
“We believe the oil market will be in deficit through the remainder of the second quarter” following the OPEC+ cuts, said NAB’s Moore, who added that the bank expected the curbs plus higher demand to drive prices higher.
