By Mark DeCambre and Chris Matthews, MarketWatch

S&P 500 energy sectors falls 1% as crude oil prices retreat from historic surge

U.S. stocks pared early losses midday Tuesday but attempts by major benchmarks to move decisively higher have been limited by weakness in the energy sector amid reports that Saudi Arabia may recover sooner than expected, after a weekend attack on its energy complex that drove crude-oil futures to the sharpest single-session rally since the 2008 financial crisis.

Investors were buying consumer discretionary and consumer staples shares as energy stocks were off sharply.

How are major benchmarks faring?

The Dow Jones Industrial Average declined 40 points, or 0.1%, at 27,037, while the Nasdaq Composite Index edged 6 points, or less than 0.1%, higher to 8,160.

On Monday (http://www.marketwatch.com/story/dow-poised-to-snap-8-session-win-streak-as-oil-markets-historic-supply-disruption-rattles-2019-09-16), the Dow fell 142.7 points, or 0.5%, to close at 27,076.82, ending an eight-day winning streak. The S&P 500 index shed 9.43 points, or 0.3%, to finish at 2,997.96, while the Nasdaq Composite Index dropped 23.17 points, or 0.3%, to end at 8,153.54.

What's driving the market?

Wall Street was attempting to recover from an oil "supply shock" that has rattled investor confidence days ahead of a crucial policy decision by the Federal Reserve.

Reuters reported that Saudi Arabia (https://www.reuters.com/article/us-saudi-aramco-oil-output/saudi-oil-output-to-return-faster-than-first-thought-sources-idUSKBN1W21NO) will restore close to 70% of the 5.7 million barrels a day production lost after coordinated Saturday attacks, knocked offline an estimated 5% of the world's global output. The report said output will be fully back online in the next two or three weeks.

Tensions in the Middle East have been running high after key oil-processing hubs in Riyadh were attacked over the weekend, leading to the biggest single-day disruption in the crude oil market in its history and a record surge for oil futures.

Saudi Arabia has enough oil in storage to make up the lost production for about 30 days, Bloomberg reported.

The events have increased tensions between Iran and the U.S., with Iran's Ayatollah Ali Khamenei saying that he will not negotiate with the U.S., which has maintained sanctions against Iranian oil exports since Trump last year pulled out of a pact limiting Tehran's nuclear ambitions even though the country was largely in compliance.

President Donald Trump may still meet with Iran's President Hassan Rouhani in New York on the sidelines an annual United Nations General Assembly later this month, according to reports. Over the weekend, Trump said he was "locked and loaded, (http://www.marketwatch.com/story/mideast-tensions-rise-as-us-says-saudi-attack-came-from-direction-of-iran-or-iraq-2019-09-15)" hinting at a possible retaliatory response against Iran. However, the U.S. president has been hesitant to directly hold Iran responsible for the Saudi attacks but has said that evidence from U.S. intelligence agencies, which have been shared with Riyadh, points to the Islamic Republic.

The Middle Eastern drama has temporarily overshadowed the Sino-American trade war, which had weighed on market sentiment and contributed to expectations that the Fed would reduce interest rates to tamp down the chance of an economic slowdown in the U.S.

Diane Jaffee, senior portfolio manager at TCW Group, told MarketWatch that the market has been edgy.

"Everybody's center of gravity turned to geopolitics in the Middle East. I think everybody took a gulp because 'locked and loaded' is a pretty scary term and investors don't have a lot of company specific information now because its just before the [third-quarter] quarter and the macro tends to weigh in," Jaffee said.

Meanwhile, Federal Reserve rate-setting committee is set to deliver an update to monetary policy in the next 24 hours.

On the data front, U.S. industrial production rose 0.6% in August (http://www.marketwatch.com/story/us-industrial-production-up-06-in-august-largest-gain-in-year-2019-09-17), the Federal Reserve said Tuesday, above the consensus expectation of a 0.4% increase, according to a MarketWatch poll of economists. Capacity utilization increased by 0.4 percentage point to 77.9%, above expectations of 77.6%.

Separately, the National Association of Home Builders' monthly confidence index (http://www.marketwatch.com/story/home-builder-confidence-rises-despite-growing-concerns-about-the-economy-2019-09-17) increased one point to 68 in September, matching the highest reading in a year, the trade group said Tuesday.

The trade group also revised its August figure up by one point to 67.

Which stocks are in focus?

WeWork parent The We Co. was expected to launch its initial public offering as soon as next week, but the sale will be delayed until at least October, according to a report (http://www.marketwatch.com/story/wework-expected-to-delay-ipo-until-at-least-october-report-2019-09-16) in the Wall Street Journal. The delay comes amid concerns about the companies valuation, which reached $47 billion in private markets last year, and following a pledge to make extensive changes to its governance structure (http://www.marketwatch.com/story/wework-plans-to-list-on-nasdaq-pledges-oversight-changes-2019-09-13).

Shares of Corning Inc. (GLW) tumbled 7.8% after the glass and ceramics manufacturer reduced its outlook (http://www.marketwatch.com/story/corning-stock-drops-after-display-optical-outlooks-cut-2019-09-16) for the full-year 2019.

Shares of KLA Corp. (KLAC) rose 1.4% Tuesday morning after closing at a record high on Monday, after the company raised its dividend 13% and authorized an additional $1 billion in share repurchases.

InterActive Corp. (IAC) stock rose 1.3% Tuesday, after Citi Research initiated coverage of the firm, which has stakes in Match Group Inc. (MTCH), ANGI Homeservices Inc. (ANGI) and other online services including Vimeo and Dotdash. Analyst Nicholas Jones rated the company as a "buy."

How are other markets trading?

The yield on the 10-year U.S. Treasury note fell 1 basis point to 1.83% from 1.843% on Monday.

Read: Saudi oil attack shows bond traders are worrying more about growth than inflation (http://www.marketwatch.com/story/saudi-oil-attack-shows-bond-traders-are-worrying-more-about-growth-than-inflation-2019-09-16)

Gold prices pulled back 0.1% to about $1,511 an ounce after jumping 0.8% on Monday, while the U.S. dollar was flat after a 0.4% rise a day ago, as measure by the ICE U.S. Dollar Index , a gauge of the buck against a basket of leading rivals.

West Texas Intermediate crude for October delivery the U.S. benchmark contract, was down 1.1% at $62.23 a barrel on the New York Mercantile Exchange after a 14.7% surge Monday, its biggest one-day percentage climb since September 2008, while November Brent crude declined 1.3% to $66.79 a barrel, following its sharpest-ever daily percentage rise, 14.6%, according to Dow Jones Market data.

In Asia overnight Monday, Hong Kong's Hang Seng Index fell 1.2%. China's CSI 300 Index sank 1.7%, and Japan's Nikkei 225 index, which didn't trade on Monday due to a holiday, finished with a gain of less than 0.1%. In Europe, the Stoxx Europe 600 closed less than 0.1% lower.

(END) Dow Jones Newswires

September 17, 2019 12:16 ET (16:16 GMT)