CNA – Oil fell yesterday as concern over the economic impact of the United States (US) 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 US dollar rose against a basket of currencies yesterday, making oil more expensive for other currency holders.
Brent crude fell USD1.21, or 1.5 per cent, to USD79.12 a barrel at 0822 GMT, while US West Texas Intermediate (WTI) crude lost 96 cents, or 1.3 per cent, to trade at USD75.82.
“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 head of commodity and carbon strategy at National Australia Bank (NAB)Baden Moore.
In the week ahead, the Reserve Bank of Australia is widely expected to extend a rate hike pause today and the European Central Bank could surprise with an outsized half-point increase on Thursday.
Weak economic data from China also weighed. 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.