Fed fears, weak China data drag oil prices lower

May 01, 2023 (MLN): Oil prices continued the downward trajectory with a steep decline on Monday owing to growing fears amongst market participants over the economic impact of the interest rate hike this week and weaker Chinese manufacturing data.

Brent crude oil fell sharply by 1.29% and is currently trading at $79.04. U.S. West Texas Intermediate (WTI) is down by 1.49% to $75.47.

The two benchmarks, Brent and WTI, both ended up declining in price for two consecutive weeks. The reasons for a downward pressure on prices are firstly, high uncertainty regarding the interest rate and the economic indicators showing results that are below expectations.

Market participants are closely watching the upcoming Fed meeting this week, on May 2-3, with traders betting on a 25 bps rate hike. A hawkish fed tone during the meeting will likely signal the next move for commodity markets.

Baden Moore, head of commodity and carbon strategy at National Australia Bank (NAB), expects that the Fed’s announcement of further rate hikes this week will cause a rise in short-term price volatility, Reuters reported.

Meanwhile, China’s manufacturing purchasing managers’ index (PMI) declined to 49.2 from 51.9 in March.

Brent crude oil marked a decline of 1.76% last week, following a decline of 5.34% the week before. WTI marked a decline of 1.67% last week after a significant 5.72% drop in the previous week.

With respect to monthly analysis, for the month of April, Brent closed with a 0.4% increase while WTI saw a slightly larger increase of 1.27%.

Economic data for the US shows that consumer expenditure on oil products remained constant for March.

However, as inflationary pressure continues to rise, the FED may hike the interest rates in the coming week, so that pressure on price levels edges down. However, this would grow fears about potential economic recession.

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