Oil falls on concerns about a US rate hike, and weak Chinese data offsetting the OPEC+ cuts

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.

Brent crude fell $1.21, or 1.5 percent, to $79.12 a barrel at 0822 GMT, while US West Texas Intermediate crude lost 96 cents, or 1.3 percent, to trade at $75.82.

“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).

Next week, the Reserve Bank of Australia is widely expected to extend its rate hike pause on Tuesday, and the European Central Bank could surprise with a big half-point increase on Thursday.

Weak economic data from China also affected. 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 and allies including Russia, a group known as OPEC+ that 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

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