Oil Price Forecast: Banking Woes and China’s Manufacturing Slump Weigh on Oil Prices

WTI Oil Highlights

• Oil prices drop on U.S. interest rate hike concerns
• Weaker manufacturing data from China affects oil supply
• OPEC+ cuts may not offset negative factors

WTI Oil Overview

On Monday, crude oil prices dropped because traders were worried about how a potential increase in U.S. interest rates might affect the economy, and because of weaker manufacturing data from China. Even though OPEC+ was cutting back on oil supply starting this month, it wasn’t enough to counterbalance the negative factors.

At 10:29 GMT, WTI Oil is trading $75.04, down $1.61 or -2.10%. On Friday, the United States Oil Fund ETF (USO) settled at $67.49, up $1.68 or +2.55%.

Fed Rate Hike May Impact Oil Demand

The U.S. Federal Reserve is expected to announce a 25 basis point increase in interest rates during their meeting on May 2-3. As a result, the U.S. dollar rose against other currencies on Monday, which makes oil more expensive for countries using other currencies.

Investors expect that news of more interest rate hikes from the Fed could cause prices of crude oil to fluctuate more in the short term.

Banking Woes Weigh on Oil

In recent weeks, worries about problems in the banking sector have dragged down the price of oil. On Monday, news broke that First Republic Bank was the third major U.S. institution to fail in two months, and that JPMorgan had agreed to purchase it. This further fueled concerns about the stability of the financial system.

China’s Manufacturing Slump Hits Oil

Meanwhile, the main focus of attention was on disappointing economic data coming out of China. The country’s manufacturing purchasing managers’ index (PMI) dropped from 51.9 in March to 49.2 in April, which means that the sector has contracted rather than expanded.

OPEC Cuts Fuel Oil Optimism

However, there was some good news for oil traders as members of OPEC and other countries agreed to voluntary cuts in oil production. This move, which will reduce output by around 1.16 million barrels per day, will take effect from May. Some traders are optimistic that these cuts, combined with higher demand, will create a shortage of oil in the market, which will push prices up. They believe that this trend will continue throughout the second quarter of the year.

Technical Analysis

From a technical standpoint, WTI Oil is currently trading below its daily pivot at $78.02, just slightly above the nearest support (S1) at $72.57. The daily pivot is new resistance.

For a look at all of today’s economic events, check out our economic calendar.