Oil prices experienced a downturn on Monday as investors weighed the potential impact of a May interest rate hike by the U.S. Federal Reserve on economic recovery prospects. However, the forthcoming release of Chinese GDP data could signal strong demand growth. Brent crude futures declined by 0.6% to $85.76 a barrel, while U.S. West Texas Intermediate crude dropped 0.6% to $81.92 a barrel.
This comes after both contracts recorded their fourth consecutive weekly gain last week, marking the longest streak since mid-2022. Vandana Hari, the founder of oil market analysis provider Vanda Insights, attributed the rangebound crude futures to the fully factored-in OPEC/non-OPEC output cuts announced two weeks ago, and the ongoing signs of a U.S. economic slowdown.
Upcoming U.S. corporate earnings could offer insight into the Fed’s policy direction and the dollar’s trajectory. A stronger greenback alongside interest rate hikes makes dollar-denominated oil costlier for other currency holders. Market participants anticipate a quarter-percentage-point Fed rate hike in May, with expectations of a rate cut pushed out to later this year.
Tuesday’s release of China’s Q1 GDP data is predicted to be favorable for commodity prices, as the International Energy Agency (IEA) forecasts China will account for most of the 2023 demand growth. However, the IEA also cautioned that OPEC+ producers’ output cuts could worsen the oil supply deficit expected in H2 2023, potentially harming consumers and the global economic recovery. Compounding supply issues, oil exports from northern Iraq to Turkey’s Ceyhan port have been halted for nearly three weeks following an arbitration case ruling that Ankara owed Baghdad compensation for unauthorized exports.
