The Fed’s decision to raise interest rates by another 0.25 basis point took a major toll on major investment markets whether it is on the stock market, bond market, real estate, or even crypto. Commodity markets were not spared, especially not the oil market. Crude oil traders are seeing U.S. benchmark West Texas Intermediate crude oil futures fall based on two factors. First weak economic data from China is having a negative impact on prices. Second, traders are expecting the price of oil to fall after the Federal Reserve announced that it raised interest rates.
The oil market is currently facing pressure due to China’s uncertain economic recovery, which is making it difficult to predict fuel consumption demand. In April, China’s manufacturing activity unexpectedly declined, which was the first contraction since December according to official data. Although China’s economic recovery from the pandemic was expected to boost demand, weak manufacturing data is creating uncertainty in the market.
Crude Oil Stocks change History
Source: American Petroleum Institute
Despite the weak manufacturing data, analysts pointed out some positive signs of recovery based on spending during the five-day Labor holiday. Indeed, major retail catering companies in China have reported a significant jump of 21% in sales, based on the Chinese Ministry of Commerce data. Moreover, a record 19.7 million railway trips were made across the country, and local media predicts a 20% in traffic compared to 2019. Moreover, a recent poll indicates that U.S. crude oil inventories are expected to decrease for the third consecutive week.
Lastly interest rates. After the US Federal Reserve raised interest rates by 25 basis points, it is expected that this hike will harm the oil market by reducing economic growth and, as a result, reducing energy demand. Additionally, banking concerns are adding stress to the oil market, with the seizure of First Republic Bank marking the third major US institution to fail in two months. JPMorgan has acquired most of First Republic Bank’s assets as part of the deal. Oil prices drew some support from U.S. manufacturing activity pulling off a three-year low in April, as new orders improved slightly and employment rebounded.