Oil prices fall on expectations of US interest rate hikes, weak PMI in China

TOKYO, May 1 (Reuters) – Oil prices fell on Monday as jitters over the prospect of the U.S. Federal Reserve raising interest rates, which could slow growth and hit fuel demand, and worries about weaker Chinese production data combined to erase earlier gains.

Brent futures for July delivery were down 61[ads1] cents, or 0.8%, at $79.72 a barrel at 0313 GMT, while US West Texas Intermediate (WTI) crude lost 63 cents, also down 0.8%, to trade at $76.15.

US consumer spending was flat in March as a rise in spending on services was offset by a decline in goods, but continued strength in underlying inflationary pressures could lead the Federal Reserve to raise interest rates again.

“A hawkish tone from the Fed could put pressure on energy and metals,” ANZ Research said in a client note.

The Fed is expected to raise interest rates by a further 25 basis points this week. The US central bank has raised its key interest rate by 475 basis points since last March from near zero levels to today’s range of 4.75%-5.00%.

US economic growth slowed more than expected in the first quarter. An acceleration in consumer spending was offset by companies liquidating inventories in anticipation of weaker demand later this year due to higher borrowing costs.

Meanwhile, China’s manufacturing purchasing managers’ index (PMI) fell to 49.2 from 51.9 in March, official data showed on Sunday, falling below the 50-point mark that separates expansion and contraction in activity on a monthly basis.

Factory activity in Japan, the world’s third-largest economy, fell for a sixth straight month in April, but the manufacturing sector was on course to stabilize amid a slower decline in new orders.

“Investors remain cautious amid mixed economic signals. Brent oil has trailed broader markets in recent sessions, with a raft of economic data adding more uncertainty to the outlook,” ANZ’s note said.

On Friday, oil prices mostly rose above 2% after energy companies posted positive earnings and US data showed crude output fell while fuel demand grew.

US crude oil production fell in February to 12.5 million barrels per day (bpd), the lowest since December. Fuel demand rose to nearly 20 million bpd, the highest since November, according to the Energy Information Administration (EIA).

EIA data last week showed US crude and gasoline inventories fell more than expected as demand for motor fuel picked up ahead of the peak summer season.

Reporting by Katya Golubkova; Editing by Kenneth Maxwell

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