Oil prices edged lower on Tuesday after a key U.S. manufacturing report dimmed the outlook on the manufacturing industry and invoked lingering fears of a global recession.
Brent crude futures declined $0.49 to $58.76/ barrel while WTI crude dropped $0.67 to $53.40/barrel. Both benchmarks posted their largest quarterly declines of the year.
Based on an overview from the Institute for Supply Management (ISM), U.S. manufacturing activity shrank in September to its lowest reading in more than a decade at 47.8%. The expectation was 50.1%. An indication below 50% signifies a contraction. This continues to draw more attention to the negative impact the U.S. – China trade war is having on the world’s largest economy. As a result, the broader market indices are down about 1% today, with the Dow Jones Industrial Average down about 300 points at writing.
“The PMIs across the globe have continued to deteriorate and obviously we are in line with that deterioration. It’s all due to the trade war,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.
“Manufacturing itself is in a recession, but it does not mean that the overall economy is in a recession.”
The decreasing manufacturing data has a negative impact on oil prices since lower manufacturing output typically means less oil demand. Also steepening oil’s losses is the strong U.S. dollar index, last traded at 98.8. The dollar is trading at two and one-half year highs as traders flock to the dollar amidst the fears of recession and impacts of the U.S. and Chinese trade war.