Oil drops as economic growth concerns offset OPEC+ cuts

TOKYO: Oil prices dropped more than a dollar a barrel on Monday after weak economic data from China and expectations of another US interest rate hike outweighed support from OPEC+ supply cuts that take effect this month.

Brent crude fell $1.27, or 1.6 percent, to $79.06 a barrel by 1521 GMT. U.S. West Texas Intermediate (WTI) crude slid $1.39, or 1.8 percent, to trade at $75.39. China's manufacturing activity unexpectedly declined in April, official data showed on Sunday, the first contraction since December in the manufacturing purchasing managers' index.

The US Federal Reserve, 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, making oil more expensive for other currency holders.

"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," said Kpler analyst Matt Smith.

Banking fears have weighed on oil in recent weeks and in what is the third major U.S. institution to fail in two months, U.S. regulators said First Republic Bank has been seized and reported a deal to sell the bank to JPMorgan.

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+, take effect from May.

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.

"Crude prices are paring losses on optimism the economy can strengthen now that banking drama is behind us and on signs factory activity is improving," said OANDA analyst Edward Moya.

Meanwhile Reuters reported that after nearly a century, oil output in the U.S. Gulf of Mexico is heading towards its peak with new platforms providing a last hurrah as the region becomes a hot spot for burying greenhouse gases.

Some companies, including Exxon Mobil Corp, have been dumping assets in the Gulf, the nation's primary offshore source of oil, and are instead targeting capturing and storing carbon dioxide and other greenhouse gases underground.

The region, soon could became contested ground for oil, carbon sequestration and renewable energy, say analysts. US Gulf oil and gas output is expected to jump 17 percent to a record 2.6 million barrels of oil equivalent per day (boepd) by 2025, up from about 2.2 million boepd this year, before it begins declining, projects consultants Wood Mackenzie.

The gain reflects a flurry of new platforms from Shell, BP, Chevron and others, budgeted before the pandemic hit global demand and made companies reduce investments.

Three of the new platforms will add 315,000 barrels of oil per day - nearly as much as the 365,0000 bpd that Pioneer Natural Resources, the third-largest US shale oil producer, will pump this year.

At this week's Offshore Technology Conference (OTC), which annually attracts more than 50,000 people, nearly a quarter of the presentations will involve offshore wind, renewables, carbon capture and energy transition, say organizers.

Carbon capture and storage (CCS) has already brought new investment as companies like Exxon, Occidental Petroleum and Talos Energy buy sites to store CO2 from oil refiners, chemical makers and liquefied natural gas (LNG) producers.

CCS "will certainly become an important part of the business activity" in the basin, Wood Mackenzie research analyst Scott Nance said. Oil development will still dominate the basin, but should coexist with CCS and renewables such as offshore wind and solar.

Wind, renewables, carbon capture and energy transition make up 24 percent of OTC panels this year, say the conference's organizers, with drilling, well completions and reservoir engineering just 15 percent of sessions, and the third largest grouping being decommissioning and life extension - oil projects nearing their end.

Still, the region's last big gasp of new oil production will be impressive: Shell expects to add 100,000 boepd from new platform Vito, BP will add 140,000 boepd from Argos, its first new platform since the Deepwater Horizon oil spill 15 years ago.

Next year, Shell and Chevron aim to start their 100,000 boepd Whale project, while Chevron is completing commissioning for its 75,000 bpd Anchor project. LLOG Exploration and Repsol plan the Salamanca platform that will pump 60,000 bpd of crude by mid-2025.