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The
Fed, which meets on May 2-3, is expected to increase interest
rates by another 25 basis points. The U.S. dollar rose against a
basket of currencies on Monday, making oil more expensive for
other currency holders.
"The prospect of further rate hikes to be announced by the Fed
this week is expected to drive an increase in near-term price
volatility," said Baden Moore, head of commodity and carbon
strategy at National Australia Bank (NAB).
Brent crude fell $1.64, or 2.0%, to $78.69 a barrel at 0947 GMT,
while U.S. West Texas Intermediate (WTI) crude slid $1.66, or
2.2%, to trade at $75.12.
"The failure to reach more solid ground above $80.50 in Brent
points to continued selling interest amid the well known
growth/demand concerns," said Ole Hansen, head of commodity
Strategy at Saxo Bank.
Banking fears have weighed on oil in recent weeks and in what is
the third major U.S. institution to fail in two months, United
States regulators said on Monday First Republic Bank has been
seized and a deal agreed to sell the bank to JPMorgan.
Weak economic data from China was in focus. China's
manufacturing purchasing managers' index (PMI) declined to 49.2
from 51.9 in March, slipping below the 50-point mark that
separates expansion and contraction in activity on a monthly
basis.
Some support came from voluntary output cuts of around 1.16
million barrels per day by members of the Organization of the
Petroleum Exporting Countries and allies including Russia, a
group known as OPEC+, which take effect from May.
"We believe the oil market will be in deficit through the
remainder of the second quarter" following the OPEC+ cuts, said
NAB's Moore, who added that the bank expected the curbs plus
higher demand to drive prices higher.
(Reporting by Katya Golubkova and Alex Lawler; Editing by Louise
Heavens and Susan Fenton)
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