Oil Prices Slump on China, US Economic Growth Concerns
By Adedapo Adesanya
Oil prices dropped on Monday after weak economic data from China and expectations of another interest rate hike in the United States.
Brent crude fell by $1.02 or 1.3 per cent to settle at $78.45 a barrel, while the US West Texas Intermediate (WTI) crude slid $1.12 or 1.5 per cent to $75.66 per barrel.
China, the world’s largest oil importer, saw its manufacturing activity unexpectedly shrank in April.
According to official data from the country’s National Bureau of Statistics, the official manufacturing purchasing managers’ index (PMI) declined to 49.2 from 51.9 in March.
This is below the 50-point mark that separates expansion and contraction in activity on a monthly basis.
This will likely raise pressure on policymakers seeking to boost the economy struggling for a post-COVID lift-off amid subdued global demand and persistent property weakness.
China is expected to be the biggest factor driving oil demand growth this year.
In the US, its central bank — the US Federal Reserve, which meets on May 2-3, is expected to increase interest rates by another 25 basis points.
The quarter-point increase expected at the May meeting would raise the benchmark interest rate to the range between 5 per cent and 5.25 per cent, that policymakers projected in both December and March would likely be the peak for the current round of policy tightening.
Growing fears of a recession due to rising interest rates as well as the risk that Chinese demand could fall short of expectations in the coming months, remain a serious worry for oil prices.
There are also fears that Russian output might not have fallen despite government announcements of cuts and assurances.
Meanwhile, the US Dollar rose against a basket of currencies, making oil more expensive for other currency holders.
This outweighed support from the Organisation of the Petroleum Exporting Countries and its allies, OPEC+ supply cuts of around 1.16 million barrels per day by OPEC+ that took effect from May 1.
Oil prices drew some support from US manufacturing activity, pulling off a three-year low in April, as new orders improved slightly and employment rebounded.