Oil prices tumble as stock markets decline

COLUMBUS, Ohio -- Oil prices dipped again Tuesday despite new indications that the U.S. manufacturing and housing industries may be on the mend.

Benchmark crude for October delivery fell $1.07 at $68.89 a barrel on the New York Mercantile Exchange.

The contract Monday lost $2.78 to settle at $69.96 after a drop in stocks heightened investor concerns that the global economic recovery may be weaker than expected.

On Tuesday, however, it appeared energy prices were rebounding after the Institute for Supply Management, a trade group of purchasing executives, said its manufacturing index rose to 52.9 in August. That is the first reading above 50, which indicates expansion, since January 2008. It's also the highest since June 2007.

The National Association of Realtors said pending U.S. home sales rose to the highest level in more than two years as first-time buyers rushed to take advantage of a tax credit that expires this fall.

However, equity and energy markets reversed course before noon.

PFGBest analyst Phil Flynn questioned whether the manufacturing report gave a skewed image of the U.S. economy.

"The question is the sustainability," he said.

There is a lot of crude and natural gas in storage, meaning that it is difficult to justify higher energy prices.

On Wednesday, the government releases its weekly report on the amount of crude and gasoline in storage.

Many expect those supplies to fall, but levels remain very high and the driving season is coming to a close.

In other Nymex trading, gasoline for October delivery fell less than a penny to $1.8052 a gallon and heating oil fell nearly 11 cents to $1.7886 a gallon. Natural gas shed 10.6 cents to $2.871 per 1,000 cubic feet.

In London, Brent crude fell 4 cents to $69.61.