Brent crude declined by over $4 between April’s final session and the beginning of May, trading at $75.3/bbl due to reignited concerns about China’s economic recovery. Further interest rate hikes in the first week of May led to investors anticipating weakened global energy demand, causing Brent crude to gradually drop to $72.3/bbl, a level not seen since late March. However, the prospect of tightened supply due to OPEC+ production cuts outweighed weakened fuel demand, with Brent crude trading at $75.2/bbl by mid-month and peaking at $78.3/bbl, before declining to $73/bbl at the end of May, largely due to uncertainty regarding the ongoing US debt ceiling negotiations.

GBP traded at $1.25 against USD at the beginning of May and continued to rise to $1.26, hovering near its strongest rate in over a year, as investors anticipated a 25bps interest rate hike from the Bank of England. The economic outlook appeared increasingly optimistic, as data revealed that GDP grew by 0.1% in Q1, and the International Monetary Fund stated that Britain may avoid a recession. Although UK levels of inflation dropped to 8.7% in April, the decline was less than expected, and British shop price inflation reached its highest rate since industry records began in 2005, rising 9% in the year to May, following an 8.8% increase in April. Consequently, GBP declined to $1.24 against USD by month-end.

The beginning of May revealed that China’s manufacturing sector unexpectedly declined, with the manufacturing PMI falling from 51.9 to 49.2 in April, causing concern over the nation’s economic recovery and fuel demand. The downward trajectory of China’s recovery persisted, with the manufacturing PMI dropping to 48.8 at the end of May, its lowest level in five months. Towards the end of the month, Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman warned traders against shorting oil futures and OPEC’s Secretary General, HE Haitham Al Ghais, announced that the oil and gas industry must “speak with one voice” against underinvestment in the industry in order to avoid increased market volatility. Meanwhile, ongoing negotiations over the US debt ceiling overshadowed markets, as President Biden remained confident that America would avoid a debt default.