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Crude Trims Gains After Weak Manufacturing Data

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NEW YORK--After rallying in the morning, crude oil futures Monday gave back most of their gains as fresh manufacturing data revived concerns about energy demand.

Crude oil futures for January delivery on the New York Mercantile Exchange settled up 18 cents, or 0.2%, at $89.09, the highest close since Nov. 19.

Crude earlier in the session had reached a high of $90.33 on renewed confidence in the euro zone and other factors.

But oil futures were in sharp retreat after Monday's release by the Institute of Supply Management of its index on manufacturing activity. The ISM's U.S. manufacturing purchasing managers' index unexpectedly fell to 49.5 in November from 51.7 in October. The November reading was the lowest since July 2009. A reading above 50 indicates expanding activity.

The panel reported a slowdown in demand in the second half of 2012 and expressed concern "over how and when the fiscal cliff issue will be resolved," the report said.

Analysts at J.P. Morgan Monday put an estimate to the hit to oil markets if the U.S. goes over the fiscal cliff. J.P. Morgan said such an outcome would trim global oil demand growth by about 580,000 barrels a day, or about half the 1.2 million oil demand growth forecast by the bank for 2013. The bank noted that its baseline forecast holds that Washington policy makers will reach an agreement to avoid such an outcome.

The weak ISM report also added to concerns about the lofty state of oil inventories. U.S. commercial oil inventories now stand nearly 12% above the year-ago levels.

"People are just looking at the fundamentals and the amount of oil we have," said Tariq Zahir, managing partner and oil trader at Tyche Capital Advisors. "We are very well supplied."

Earlier in the session, oil had perked up enough to spawn talk of $93- or $94-oil.

Market participants cited recent news that Spain had formally requested a 40 billion euro bailout as a key moment in strengthening the monetary union's prospects. Also positive for the euro: comments from German Chancellor Angela Merkel that suggested she wouldn't block a public-sector debt write-down for Greece.

The oil market in the morning also picked up momentum from Chinese manufacturing data and ongoing strife in the Middle East. But by the afternoon, oil was only barely in positive territory.

The ISM report "took away some of the bullish momentum," said Phil Flynn, an analyst at the Price Futures Group. "It leads to the conclusion that maybe the U.S. economy is faltering a bit."

Additional data released later this week on the employment picture "could have a significant impact on the oil trade," Jim Ritterbusch at Ritterbusch and Associates said in a note to clients.

Front-month reformulated gasoline blendstock, or RBOB, settled at $2.727 a gallon, down 0.4 cent. Heating oil futures settled at $3.056 per gallon, down .5 cent.

-Kathleen Madigan contributed to this article.

Copyright (c) 2012 Dow Jones & Company, Inc.

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