Oil Traders Resume Bearish Stance Due To China, Commodity Drops Over 1%

Meanwhile, a host of bullish news flew under the radar: File image/Pixabay

In the seesaw pattern that has dominated oil trading of late, rudderless traders on Monday reverted to bearish sentiment and caused the commodity to drop by over 1 percent, based on disappointing economic news from China and ongoing concern of another U.S. interest rate hike.

China's official manufacturing purchasing managers' index (PMI) declined to 49.2 from 51.9 in March, marking the first contraction in that country since December – even though its economy grew faster than expected in the first quarter thanks to robust services consumption.

Zhao Qinghe, senior statistician at NBS, said factors causing the contraction included "A lack of market demand and the high-base effect from the quick manufacturing recovery in the first quarter."

As a result, Brent on Monday fell $1.02, or 1.3 percent, to settle at $78.45 per barrel, while West Texas Intermediate dropped $1.12, or 1.5 percent, to settle at $75.66.

Matt Smith, analyst at Kpler, said, "We continue to be at the mercy of sentiment surrounding a Chinese recovery or the lack thereof, while the backdrop in the U.S. of ongoing monetary tightening leaves us in the 'bad is good' realm when it comes to economic data or newsflow."

Indeed, talk in trading circles revolved around expectation that the U.S. Federal Reserve will increase interest rates by another 25 basis points when it meets on May 2-3.

Apparently flying under traders' radars on Monday was voluntary output cuts of 1.16 million barrels per day (bpd) by the Organization of the Petroleum Exporting Countries taking effect this month; according to Reuters calculations, this brings the total volume of cuts by OPEC to 3.66 million bpd or 3.7 percent of global demand.

Also ignored by traders was JPMorgan Chase announcing it had acquired the substantial majority of assets and assumed the deposits and certain other liabilities of First Republic Bank from the Federal Deposit Insurance Corporation.

Jamie Dimon, chief executive officer at JPMorgan, said, "This is getting near the end of it, and hopefully this helps stabilize everything," and he added that regional banks that reported first-quarter results in recent weeks "actually had some pretty good results….the American banking system is extraordinarily sound."

However, Monday's losses were said to be mitigated somewhat by reports that the U.S. manufacturing sector was moving away from a three-year low in April thanks to new orders and a rebound in employment.