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Oil Prices Fall On Disappointing Manufacturing Data

Oil prices were down sharply on Monday after the latest manufacturing data showed that the sector contracted for the 5th straight month in April, ending a 30-month period of expansion. Brent crude was down 1.8% to $79.15 per barrel at 11:30 ET, marking the first time it has slipped below $80 per barrel in nearly four weeks. 

Meanwhile, WTI crude lost 2.1% to trade at $75.20 per barrel after the manufacturing report showed that April Manufacturing Purchasing Managers Index (PMI) clocked in at 47.1 percent, 0.8 percentage points higher than the previous month’s reading but the 6th month it came in below 50%. A PMI above 50 represents an expansion when compared with the previous month while a reading under 50 represents a contraction.

Oil prices have also come under pressure from an impending interest rate hike in the current week. The Fed is expected to increase interest rates by another 25 basis points when it meets on May 2-3. Further, the U.S. dollar has been rising against a basket of currencies over the past week, making oil more expensive for other currency holders.

Over the past few weeks, oil prices have lost forward momentum after the 2 April announcement of voluntary output cuts failed to counter worries about demand linked to a weakening economic backdrop and a hawkish Federal Reserve. Growing fears of a recession due to rising interest rates as well as the risk that Chinese demand could fall short of expectations in the coming months remain a serious overhang on oil prices. 

There are also fears that Russian output might not have fallen despite government announcements.

Not surprisingly, energy stocks have also started losing their luster: Energy SPDR (XLE) lost $739 million last week at a time when investors added $46.1B to the fund market and the broad market SPDR S&P 500 ETF (NYSEARCA:SPY) managed to pull in $4.9B. XLE has lost 3% over the past 30 days but is nearly flat in the year-to-date.

By Alex Kimani for Oilprice.com

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  • George Doolittle on May 01 2023 said:
    Sudden cool spell hitting the USA during a warm(ing) continues to flood the USA with truly *AWESOME* amounts of fuel and distillate product.

    Plus the US Federal Reserve will raise interest rates yet again *"probably"* but if not well...good luck being continuing to massively short US Treasuries to get your "free money"(capital.) Bitcoin obliterated today as well. Short gold strong sell. Still, viability of low cost energy extraction plus transportation costs of fuels and so many other factors for 2023 (Vogtle 3&4) all "conspiring" to make incredibly low costs still make very low prices in the USA for ICE fuels etc more than viable but economic as well. This should be a huge driver for economic growth going forward as well but for obvious reasons is not 2023-2024.

    Long Shell Energy strong buy.
    Long $F Ford Motor Company strong buy
    Long $gis General Mills strong buy

    Long $ko Coke strong buy
    Pretty much long everything strong buy upon US common stocks at the moment as inflation pressures dramatically abate and default risk continues to soar for reckless lenders and speculators. Oddly enough great time to be in the newspaper business tho.

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