DTN Oil

WASHINGTON, D.C. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Monday's session mixed, with West Texas Intermediate paring losses amid renewed weakness in the dollar index after U.S. economic data today showed business activity across the industrial and service sectors unexpectedly fell into contraction last month, increasing odds for less aggressive increases in the federal funds rate by the Federal Open Market Committee.

The U.S. economy slid into a steeper downturn at the start of the fourth quarter, with the headline Purchasing Manufacturing Index registering 47.3 in October, down from 49.5 in September. The neutral 50 level separates growth from contraction. Except for the pandemic months of April and May 2020, the rate of decrease was the second-fastest since the 2008 Global Financial Crisis.

The survey showed American manufacturers are increasingly concerned with ongoing price pressures compounded by souring consumer sentiment and rising interest rates from the Federal Reserve. Service sector providers recorded an even quicker decline in business conditions, citing tighter credit and a cost-of-living crisis.

"The U.S. economic downturn gathered significant momentum in October, while confidence in the outlook also deteriorated sharply. Clearly this is unsustainable absent of a revival in demand, and it's no surprise to see firms cutting back sharply on their input buying to prepare for lower output in coming months," commented Chris Williamson, Chief Business Economist at S&P Global Market.

The bad news for the economy became good news for the stock market. Dow Jones Industrials rallied more than 400 points, and S&P 500 jumped 1.2%, extending gains into a new trading week as investors continued to lower their bets for another 0.75% rate increase in December by the FOMC.

FOMC is still expected to raise the federal funds rates by another 0.75% at their Nov. 1-2 meeting, which would be the fourth consecutive rate hike of this magnitude in as many meetings. Fed officials are raising rates at the most aggressive pace since the early 1980s, and some officials are becoming concerned about a deep recession as rate hikes work themselves into the economy.

"I worry that if the way you judge it is another bad inflation report must be that we need more rate hikes that puts us at somewhat greater risk of responding overly aggressive," said President of Chicago Federal Reserve Bank Charles Evans this week.

"We will have a very thoughtful discussion about the pace of tightening at our next meeting," Fed governor Christopher Waller said in a speech earlier this month.

Other Fed officials are frustrated with the lack of progress in curtailing inflation despite tighter monetary conditions.

Earlier in the session, the oil complex came under heavy selling pressure from bearish economic data out of China, showing oil imports in September contracted 2% from a year earlier as refiners struggled to utilize increased quotas amid COVID-19 lockdowns. The bearish data was compounded as Chinese President Xi Jinping was given a third five-year term during the twice-a-decade Communist Party Congress meeting, and reshuffled his government, appointing loyalists to all key positions that dashed hope Beijing would soon pivot away from Xi's demand-sapping zero-COVID policy. China's economy has been hammered by rolling COVID-19 lockdowns, government restrictions on the property sector and international travel.

Chinese stocks on Monday capped their worst day since the 2008 global financial crisis as investors fled mainland markets after a major power grab in Beijing. The onshore yuan fell as much as 0.6% against the U.S. dollar to the weakest level since January 2008. Underscoring the market meltdown is growing fear that the appointment of Xi's allies to key government positions would make it impossible to enact pro-growth, market policies.

At settlement, December WTI futures eased $0.47 to $84.58 bbl, and the international crude benchmark for December delivery fell $0.24 to $93.26 bbl. ULSD futures for November delivery gained 8.78 cents to $3.9201 gallon, and November RBOB futures rallied 6.82 cents to $2.7302 gallon.

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