Oil is falling as economic growth concerns offset the OPEC+ cuts

  • The US Federal Reserve expected to raise interest rates by 25 basis points this week
  • The latest OPEC+ production cuts of 1.16 million barrels per day take effect from Monday
  • The market in deficit during the second quarter is seen by an analyst

TOKYO (Reuters) – Oil fell on Monday as concerns about the economic impact of a potential U.S. Federal Reserve rate hike and weaker Chinese manufacturing data outweighed support from new OPEC+ supply cuts that took effect this month.

The Fed, which meets May 2-3, is expected to raise interest rates by another 25 basis points. The US dollar rose against a basket of currencies on Monday, making oil more expensive for holders of other currencies.

“The prospect of an interest rate hike that the Fed will announce this week is expected to increase price volatility in the near term,” said Baden Moore, Head of Commodities and Carbon Strategy at the National Australia Bank (NAB).

Brent crude fell $1.64, or 2.0%, to $78.69 a barrel at 0947 GMT, while US West Texas Intermediate crude fell $1.66, or 2.2%, to trade at $75.12.

“The failure to reach a more solid floor above $80.50 in Brent indicates continued selling interest amid known growth/demand concerns,” said Ole Hansen, Head of Commodities Strategy at Saxo Bank.

Banking concerns have weighed on oil in recent weeks, US regulators said on Monday, and in the third major US institution to fail in two months, First Republic Bank was taken over and the bank agreed to be sold to JPMorgan.

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The focus was on weak economic data from China. China’s manufacturing Purchasing Managers’ Index (PMI) fell to 49.2 from 51.9 in March, falling below the 50-point mark that separates expansion and contraction in activity on a monthly basis.

Some support came from 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+, which takes effect from May.

“We think the oil market will be in deficit for the remainder of the second quarter” after the OPEC+ cuts, NAB’s Moore said, adding that the bank expects the restrictions as well as increased demand to push prices higher.

Reporting by Katya Golubkova. Editing by Kenneth Maxwell

Our standards: Thomson Reuters Trust Principles.

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