WTI hits 8-week low as U.S. manufacturing expansion slows, recovering global supplies

West Texas Intermediate fell to the lowest since the end of July after a preliminary report by Markit Economics showed that U.S. manufacturing activity expanded at a slower pace in September. Meanwhile, output in South Sudan rose to the highest since 2012 and Libya is in the process of recovering its production. A possible groundbreaking meeting between the leaders of the U.S. and Iran during the U.N. gathering this week also pressured prices.

On the New York Mercantile Exchange, WTI crude for delivery in November fell by 1.16% to $103.54 per barrel at 14:29 GMT. Futures fell to a session low of $103.16 earlier in the day, the weakest level since July 30, while days high remained at $105.10 a barrel. Light, sweet crude fell by 0.3% on Friday and settled the week 3.4% lower after retreating 1.56% in the preceding five-day period.

Meanwhile on the ICE, Brent oil for delivery in November plunged 0.91% to $108.23 a barrel at 14:30 GMT. The contract held in range between days high of $109.45 and low at $107.88 a barrel, near last Tuesdays 1-month high. The European benchmark rose by 0.4% on Friday but settled the week 2.2% lower, the biggest weekly decline in three months.

WTI fluctuated in a wide range on Monday and hit new multi-week lows as Markit Economics said that its flash U.S. Manufacturing PMI fell to a three-month low of 52.8 in September from 53.1 in August. Analysts expected a surge to 54.0. This was a second consecutive expansion slowdown but was still above the neutral level and consistent with modest growth of the sector. Output growth accelerated to a six-month high of 55.3, but the volume of new orders received rose at the slowest pace in five months. Manufacturers also remained cautious in hiring this month with the job creation rate hitting the lowest this quarter at 51.4, down from 53.1 in August. New Export orders retreated to 49.1 after advancing for two straight months and surging to 52.0 in August.

Chris Williamson, Chief Economist at Markit said: “The flash PMI indicates that manufacturers enjoyed a further improvement in business conditions in September, suggesting the third quarter has on the whole seen stronger growth than the lacklustre performance seen in the second quarter. However, as far as policymakers are concerned there are some worrying signals in relation to the sector’s growth momentum, which vindicate the Fed’s decision to hold off on tapering its asset purchases.”

The market also remained pressured amid easing tension between Syria and the U.S. Assad’s regime submitted an initial inventory report of its chemical arsenal on September 20, meeting a deadline that was set by the U.S.-Russia agreement that aimed for avoiding military action.

Discussions on the plan to destroy Syria’s chemical weaponry will continue this week in the U.N. with the first conflict between the negotiators already at hand. The Western partners, the U.S., U.K and France, want to drive through a resolution that provides enforcement of the terms in the September 14 Geneva accord, something which the Russian side opposed. Russian Foreign Minister Sergei Lavrov said that the U.S.-European plan to include threats of force in the resolution is “irresponsible and unprofessional”.

Also pressuring oil, Libya’s oil output has recovered to to 600 000 barrels per day after falling to a around 150 000 bpd in the beginning of the month, Sliman Qajam, the deputy head of the Libyan parliament’s energy committee said. Meanwhile, South Sudan is back on the oil producing scene, easing further global supply concerns.

Carsten Fritsch, Commerzbank senior oil analyst, said for Reuters: “The return to the market of Libyan and South Sudanese supply is weighing on prices. South Sudan is currently producing 240,000 barrels of crude oil per day, the highest volume since oil production was shut down in January 2012.”

A positive diplomatic tone between Iran and the U.S. could also weigh on prices. Recently elected President Hassan Rouhani is expected to meet this week with President Barack Obama in New York for further talks on the country’s disputed nuclear program, which has put Iran under Western sanctions that curbed the country’s oil exports.

Support

Earlier in the day, manufacturing data from China and Europe provided some support to the oil market. The September reading of the HSBC Flash China Manufacturing PMI rose to a six-month high of 51.2 and surpassed analysts’ expectations for a surge to 50.9 after hitting 50.1 in August. At the same time, the Flash China Manufacturing Output Index jumped to a five-month high of 51.1 from 50.9 in August.

Meanwhile, a separate report showed that France’s Advance Manufacturing PMI fell to 49.5, confounding analysts’ expectations for a surge to 50.1 from August’s 49.7. Meanwhile, Germany’s index stood at 51.3, slightly underperforming expectations for a surge to 52.0 from 51.8 in the previous month.

The Euro zone’s manufacturing output rose for a third month, although the pace was slower than August’s 27-month high. The single currency bloc’s Advance Manufacturing PMI remained above the neutral level at 51.1 after hitting 51.4 in August. However, manufacturing has seen the strongest three months of growth since the second quarter of 2011.