Oil drops 1% as economic growth concerns offset OPEC+ cuts

Tokyo, May. 1 (BNA): Oil prices fell to the dollar per barrel on Monday after weak economic data from China and expectations of another US interest rate hike outweighed support from the OPEC+ supply cuts that took effect this month.

Brent crude fell $1.02, or 1.3 percent, to settle at $78.45 a barrel, while US West Texas Intermediate crude fell $1.12, or 1.5 percent, to settle at $75.66, Reuters reported.

Official data showed on Sunday that China’s manufacturing activity fell unexpectedly in April, the first contraction since December in the manufacturing PMI.

“The market is very dependent on what happens to China, and most of the current news out of the manufacturing sector has been disappointing,” said Peter McNally, an analyst at Thirdbridge.

He added that China is expected to be the biggest factor driving oil demand growth this year. The US Federal Reserve, which meets on May 2-3, is expected to raise interest rates by another 25 basis points. The dollar rose against a basket of currencies, making oil more expensive for holders of other currencies.

“We remain at the mercy of sentiment surrounding a Chinese recovery or lack thereof, while the backdrop in the US of continued monetary tightening leaves us in the ‘bad is good’ realm when it comes to economic data or news flow,” he said. Kepler analyst Matt Smith.

Banking concerns have weighed on oil in recent weeks, and in what is the third major US institution to fail in two months, US regulators seized First Republic Bank over the weekend ahead of a deal in which JPMorgan bought most of its assets.

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Voluntary production cuts of about 1.16 million barrels per day by members of the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, in a group known as OPEC+, take effect from May.

Oil prices drew some support from manufacturing activity in the United States, retreating from a three-year low in April, as new orders improved slightly and employment rebounded.

“Crude oil prices are trimming losses on the back of optimism that the economy can strengthen now that the banking drama is behind us and in light of indications that factory activity is improving,” said Edward Moya, an analyst at OANDA.


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