Energy & Technology

Oil prices decline as worries over economic growth outweigh OPEC+ production cuts

Oil prices decline

In recent news, oil prices experienced a sharp decline of over a dollar per barrel due to weak economic data from China and the anticipation of another U.S. interest rate hike. These factors overshadowed the support from OPEC+ supply cuts that were set to take effect this month.

As of 11:21 a.m. EDT (1521 GMT), Brent crude fell by 1.6% or $1.27 to trade at $79.06 a barrel, while U.S. West Texas Intermediate (WTI) crude declined by 1.8% or $1.39 to trade at $75.39.

The official data released on Sunday showed an unexpected decline in China’s manufacturing activity in April, indicating the first contraction since December in the manufacturing purchasing managers’ index. Additionally, the U.S. Federal Reserve is expected to increase interest rates by another 25 basis points, and the U.S. dollar rose against a basket of currencies, making oil more expensive for holders of other currencies.

According to Kpler analyst Matt Smith, “We continue to be at the mercy of sentiment surrounding a Chinese recovery or the lack thereof, while the backdrop in the U.S. of ongoing monetary tightening leaves us in the ‘bad is good’ realm when it comes to economic data or newsflow.”

The fear of banking woes has been a significant factor affecting oil prices in recent weeks, and the seizure of First Republic Bank and its sale to JPMorgan, which is the third major U.S. institution to fail in two months, has added to those worries.

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However, voluntary output cuts of around 1.16 million barrels per day by the members of the Organization of the Petroleum Exporting Countries and allies, including Russia, known as OPEC+, are set to take effect from May. This development has provided some support to the oil prices.

Additionally, the U.S. manufacturing activity witnessed a slight improvement in April as new orders improved slightly, and employment rebounded, which gave some boost to the crude prices.

According to OANDA analyst Edward Moya, “Crude prices are paring losses on optimism the economy can strengthen now that banking drama is behind us and on signs factory activity is improving.”

In conclusion, the weak economic data from China and expectations of another U.S. interest rate hike have caused a decline in oil prices, despite the support from OPEC+ supply cuts. The banking concerns and the U.S. dollar’s rise against other currencies have added to the downward pressure. However, the slight improvement in U.S. manufacturing activity and the forthcoming OPEC+ output cuts have provided some hope for the oil prices to rebound in the future.

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