Oil Futures Close Lower

WASHINGTON (DTN) -- Oil futures on the New York Mercantile Exchange nearest to delivery and the Intercontinental Exchange Brent contract retreated after bearish U.S. manufacturing data reinforced concerns about weakening economic growth inflicted by a yearlong trade war between the United States and China.

Oil futures pared losses following steep declines earlier in the session, with NYMEX October West Texas Intermediate futures settling down $1.16 at $53.94 barrel (bbl) one-week low, while ICE November Brent futures ended down $0.40 at a $58.26 bbl two-week low settlement on the spot continuous chart. NYMEX October ULSD futures ended the session 3.4 cents lower at a $1.8033 gallon one-week low settlement. The October RBOB contract tumbled 5.92 cents to $1.4705 gallon, a nearly seven-month low on the spot continuous chart.

The U.S. dollar, which reached a 28-month high at 99.33 earlier in the session, weakened to a session low at 98.865 in reaction to the steep drop in the U.S. manufacturing index, with the weaker currency easing some pressure off WTI futures. Nonetheless, WTI futures lost 2% at settlement after the latest reading on U.S. manufacturing was below the market's most bearish expectations.

The Institute for Supply Management reported midmorning U.S. manufacturing dropped to 49.1 and into contraction territory for the first time in three years in August, down from a 51.2 reading one month prior.

The latest industrial data from the United States is now correlating with slowdowns elsewhere, with many global manufacturing Purchasing Managers Indexes now in mid-40 readings, with declines accelerating following the latest escalation in U.S.-China trade war.

Early in the session, oil futures came under selling pressure from a new round of tariffs between the United States and China, which came into effect on Sunday (9/1). The United States imposed a 15% tariff on $110 billion worth of Chinese goods and China raised duties on $75 billion of U.S. imports. Representatives from both countries have yet to agree on a date or agenda for additional trade talks, according to the wire services, with Washington and Beijing set to raise tariffs further in December.

Tuesday's lower settlements also follow the reports of an unexpected uptick in crude production from the Organization of Petroleum Exporting Countries, including the group's largest producer Saudi Arabia. Bloomberg reported the cartel pumped 29.9 million barrels per day (bpd) in August, up by 200,000 bpd from a month prior, which also marked the first production increase since November 2018. According to RIA News, Russian energy minister Alexander Novak said this weekend Moscow also exceeded allotted quota last month by 120,000 bpd to reach 11.29 million bpd from 11.15 million bpd in July.

Domestically, the National Hurricane Center downgraded a slow-moving Hurricane Dorian to category two intensity, as it begins to make its way to the U.S. East Coast from Florida and northward to the Carolinas. DTN explains that Dorian's slow to nonexistent movement over the past 48 hours has resulted in cooling of sea temperatures underneath the storm's inner core and will likely lead to a modest and gradual weakening over the next few days. Coastal North Carolina currently has the highest potential to experience hurricane-like conditions with only a minor westward shift required for a direct landfall to occur. Traders now expect disruptions from the storm to be concentrated at the local retail and consumer level. DTN reported gasoline retail prices along with fuel liftings across monitored terminals in Florida and Carolinas started to decline on Tuesday, pointing to elevated confidence level among residents that the storm will remain offshore.

Liubov Georges can be reached at liubov.georges@dtn.com

(BAS)