Oil prices dropped on Monday, affected by concerns over the possible impact of the U.S. Federal Reserve's decision to increase interest rates and weaker Chinese manufacturing data. The decline outweighed support from the OPEC+ supply cuts that went into effect this month. The Fed is expected to increase interest rates by another 25 basis points, which could negatively impact the U.S. financial system. As a result, the U.S. dollar rose against a basket of currencies, making oil more expensive for other currency holders.
On Monday, Brent crude fell $1.47, or 1.8%, to $78.86 a barrel, while U.S. West Texas Intermediate (WTI) crude slid $1.49, or 1.9%, to trade at $75.29. Despite voluntary output cuts of around 1.16 million barrels per day by OPEC+ members and allies, concerns about the economic growth of China and the U.S. overshadowed the support.
The banking sector's impact on the oil market has also been significant, with First Republic Bank (NYSE:FRC) being the third major U.S. institution to fail in two months. The bank has been seized, and a deal to sell the bank to JPMorgan (NYSE:JPM) has been agreed upon, which has raised investors' fears about the impact of the Fed's continued interest rate hikes.
Despite the current decline in oil prices, Baden Moore, Head of Commodity and Carbon Strategy at National Australia Bank (OTC:NABZY), believes that the oil market will be in deficit throughout the second quarter, given the OPEC+ cuts.
