Crude rose to the highest level in two weeks after Chinese manufacturing grew the most in seven months in November.
Prices advanced for a third day as China’s Purchasing Managers’ Index rose on new orders and export demand. Futures pared gains, which took them to a six-week intraday high, after the Institute for Supply Management reported U.S. factory output last month fell to the lowest level since July 2009.
“People are looking for economic news to see what’s going on, and China’s manufacturing number is a good sign,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “The ISM brought investors back to earth and took out whatever enthusiasm there was over the Chinese numbers earlier.”
Oil for January delivery gained 18 cents to $89.09 a barrel on the New York Mercantile Exchange, the highest settlement since Nov. 19. Prices advanced 3.1 percent last month and are down 9.9 percent in 2012.
Brent for January settlement slid 31 cents, or 0.3 percent, to $110.92 a barrel on the London-based ICE Futures Europe exchange.
China’s official manufacturing index, reported Dec. 1 by the National Bureau of Statistics and China Federation of Logistics and Purchasing, climbed to 50.6 in November. A reading above 50 indicates expansion.
“The manufacturing numbers from the U.S. and China are playing a role in today’s volatility,” said Chris Barber, a senior analyst at Energy Security Analysis Inc. in Wakefield, Massachusetts.
China, the world’s second-biggest oil consumer after the U.S., used 9.76 million barrels of oil last year, or about 11 percent of the global total, according to BP Plc’s Statistical Review of World Energy.
Oil reduced gains after the U.S. manufacturing data showed an unexpected contraction.
The ISM index decreased to 49.5 last month from 51.7 in October, the Tempe, Arizona-based group said. Economists projected the index would slip to 51.4, according to the median forecast in a Bloomberg survey.
“Crude is very susceptible to these intraday numbers,” said Rich Ilczyszyn, chief market strategist and founder of Iitrader.com in Chicago.
The U.S., the world’s biggest oil-consuming country, used 18.8 million barrels a day in 2011, or 21 percent of the global total, according to BP’s statistical review.
Oil also gained as Greece offered 10 billion euros ($13 billion) to buy back bonds issued earlier this year as part of a package of measures approved by euro-area finance ministers last week to cut the nation’s debt.
The so-called modified Dutch auction was announced today by the Athens-based Public Debt Management Agency. The package aims to cut Greece’s debt to 124 percent of gross domestic product in 2020 from a projected 190 percent in 2014.
The euro rose to a six-week high against the dollar the Greek offer. The 17-nation currency strengthened as much as 0.7 percent to $1.3076, the highest level since Oct. 23. A stronger euro and weaker dollar boost oil’s appeal as an investment alternative.
“With the weakness in the U.S. dollar and China’s strong PMI number, it’s not surprising to see oil up,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. “China is a big oil consumer and the PMI number is a good sign.”
Oil is likely to fall through the end of the year before possible gains next year, according to Morgan Stanley.
“Softer fundamentals in the fourth quarter of 2012 should weaken crude prices into year-end,” the bank said in a research report today. “However, we believe risks are skewed to the upside for 2013.”
Total U.S. fuel demand fell 2.4 percent in the week ended Nov. 23 to 19 million barrels a day, the Energy Department reported last week. Gasoline consumption slumped 5.3 percent to 8.43 million barrels a day.
U.S. crude production climbed 1.6 percent in the same period to 6.82 million barrels a day, the highest level since February 1994.
“I am an oil bear once you look at demand-supply fundamentals,” Zahir said.
Electronic trading volume on the Nymex was 396,509 contracts as of 3:55 p.m. Volume totaled 426,847 contracts on Nov. 30, 19 percent lower than the three-month average. Open interest was 1.55 million.