Crude Futures Pullback on ISM Slump

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude on the Intercontinental Exchange ended shallowly mixed Tuesday afternoon, with the U.S. crude benchmark retreating to a seven-week low settlement after U.S. manufacturing unexpectedly fell deeper into contraction last month, triggering concerns of a looming economic recession.

Fading from session highs, NYMEX November West Texas Intermediate futures gave back $0.45 to settle at $53.62 barrel (bbl), with ICE December Brent trimming value by $0.36 to end the session at $58.89 bbl. NYMEX November ULSD futures gained 0.13 cents to $1.8985 gallon and November RBOB settled 0.72 cents higher at $1.5737 gallon.

Institute of Supply Management reported at midmorning U.S. manufacturing contracted for the second consecutive month in September, sending both equities and oil markets sharply lower. ISM data showed manufacturing index dropped to 47.5 last month, a fresh 10-year low and well below market expectations.

The sharp decline was once again driven by lower export orders last month, down to only 41% -- the lowest since Great Recession of 2008-2009. The deepening contraction means U.S. manufacturing is now in sync with global indexes for the sector, sparking fears of a global recession.

U.S. President Donald Trump took to twitter to blame a "pathetic" Federal Reserve and a strong dollar for weakness in domestic industries. Still, most economists attribute the decline to ongoing the U.S.-China trade war that has created an environment of confusion among domestic manufacturers.

U.S.-China trade talks are set to resume in the second week of October in Washington, D.C.

Financial markets remain on edge after the last round of negotiations unexpectedly broke down in July, leading to tariff hikes exchanged between the two countries. Both countries are set to raise import tariffs further in December if negotiations fail to yield a positive outcome.

U.S. equities posted across-the-board losses on Tuesday, with Dow Jones Industrial plunging nearly 300 points late in the session and the S&P 500 shed 1.05%. Government bonds and gold jumped after the ISM report was released, as investors rushed to safe assets.

Markets now await weekly supply data on U.S. crude and petroleum inventories for the last week of September. American Petroleum Institute will publish estimates at 4:30 p.m. EDT Tuesday, while U.S. Energy Information Administration is due to release official figures 10:30 a.m. EDT on Wednesday.

DTN expects a 2.2 million bbl build in domestic crude stocks occurred last week and an increase of 1.2 million bbl in gasoline supply, while distillate inventories are expected to have decreased by 1.2 million bbl on the week.

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

(BAS)