The ISM manufacturing activity index in February sank to the lowest since November 2016, and was below expectations.
US West Texas Intermediate futures fell $1.46 to $55.76 a barrel by 12:40 p.m. EST (1740 GMT). The contract had earlier hit a high of $57.88.
Global benchmark Brent crude futures for May fell $1.58 to $64.73 a barrel, after earlier touching a session high of $67.14.
US crude is on track to end the week down 2.7 percent and Brent is set to lose 3.6 percent.
"We have been the island of prosperity, globally, so if the economic slowdown is coming our way that is bad news for oil prices," said John Kilduff, a partner at Again Capital LLC in New York. "We were up all morning until that data hit," he said.
The data sent a strong message to a market that has been looking for direction, said Phil Flynn, an analyst at Price Futures Group in Chicago.
"I think the market is nervous, and when they got the data, they reacted," he said.
The data compounded worries that demand is falling globally.
A Reuters poll showed analysts expect global fuel consumption to dip this year in the face of a broad economic slowdown.
China's February factory activity fell for a third month as the world's second-largest economy continued to struggle with weak export orders, a private survey showed on Friday.
The weakness is also being felt across the wider region. South Korea's exports contracted at their steepest pace in nearly three years in February as demand from China cooled further.
Despite this, fuel consumption, especially in Asia's developing economies which are key drivers of global oil demand, is so far holding up.
India's diesel consumption, for example, is expected to rise to a record this year amid economic growth of around 7 percent.
Potential demand declines could offset producers' efforts to curb a global supply glut.
The 14-member Organization of the Petroleum Exporting Countries pumped 30.68 million barrels per day (bpd) in February, a Reuters survey showed, down 300,000 bpd from January and the lowest OPEC total since 2015.
In Venezuela, oil exports have plunged 40 percent to around 920,000 barrels per day (bpd) since the US government slapped sanctions on its petroleum industry on Jan. 28.
OPEC, of which Venezuela is a founding member, is leading efforts to withhold around 1.2 million bpd of supply from the market to prop up prices. Venezuela is exempt from the cuts.
The fall in OPEC production comes at a time when the United States is pumping oil at record rates. The Baker Hughes US oil rig count, a forward-looking production indicator, is due at 1 p.m. EDT.
Canada's main oil-producing province of Alberta on Thursday raised the amount of crude that companies can produce in April to 3.66 million bpd, an increase of 100,000 bpd from the limit imposed in January.