Oil prices slumped in Asian trade on Tuesday, adding to losses seen in the previous session as weak economic data from China and prospects for a US rate hike weighed on the market. China’s April manufacturing activity sees a surprise fall. U.S. Fed expected to raise interest rates by 25 bps.
Brent crude was down 0.3%, or 24 cents, at 0615 GMT to $79.07 a barrel, while West Texas Intermediate (WTI) crude fell 0.3%, or 25 cents, to $75.41 a barrel. Both benchmarks fell by more than $1 in their last session.
The downward pressure on oil is supported by the fact that China’s economic recovery is not promising and overshadows the demand outlook for fuel consumption.
China’s industrial and economic recovery from the coronavirus pandemic was expected to boost demand this year. However, China’s manufacturing activity unexpectedly fell in April, marking the first contraction in the manufacturing purchasing managers’ index since December, according to official data released on Sunday.
Meanwhile, the world’s largest oil importer has positive signs of recovery based on spending during the Labor Day holiday, despite weak manufacturing data from China, according to analysts.
State broadcaster CCTV reported that sales from major retail and catering companies rose 21% year-on-year, according to data from the Ministry of Commerce. 19.7 million record rail journeys were made across the country. Traffic is also expected to be 20% more than in 2019.
At the weekend, CCTV reported that on the first day of the holiday, passenger travel increased by 151.8% compared to the same day of the previous year, while the number of air, land, water, and rail services increased to 56.99 million.
Meanwhile, a poll on Monday showed US crude inventories are expected to drop for the third week in a row, giving the market some support.
The survey was conducted ahead of the American Petroleum Institute’s reports to be released at 20:30 GMT. Data from the Energy Information Administration (EIA), the statistical arm of the US Department of Energy, will be released Wednesday at 1430 GMT.
However, the US Federal Reserve, which will meet on Tuesday and Wednesday, is expected to increase interest rates by another 25 basis points. Interest rate hikes by inflation-fighting central banks most likely will affect oil by slowing economic growth and reducing energy demand.
Banking fears have also weighed on oil in recent weeks, with regulators confiscating US First Republic Bank, the third largest US institution to go bankrupt within two months.