Oil pared losses after the Institute for Supply Management reported U.S. manufacturing unexpectedly increased last month even as factory indexes from China to Europe dropped. New York futures recouped part of a 2 percent drop as the U.S. manufacturing index rose for the first time in four months, a sign industry is rebounding after shortages of parts and components from Japan slowed production. China’s Purchasing Managers’ Index fell to the lowest level since February 2009 and a gauge in the 17-nation euro area slipped to an 18-month low. “The U.S. report is good for oil because it allays some of the concerns about the second-half economy,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “There is still bearish news out there, but this is a bright spot on the positive side.” Crude for August delivery fell $1.07, or 1.1 percent, to $94.34 a barrel at 10:54 a.m. on the New York Mercantile Exchange. Prices have risen 29 percent in the past year and 3.4 percent this week. Brent oil for August settlement slid $1.88, or 1.7 percent, to $110.60 on the London-based ICE Futures Europe exchange. The European benchmark contract narrowed its premium to WTI to $16.38. The spread reached a record $22.29 a barrel on June 15. The U.S. manufacturing index reached 55.3 in June from 53.5 in May, according to the Tempe, Arizona-based ISM. It was forecast to drop to 52, according to the median estimate of 77 economists in a Bloomberg survey. The U.S. and China are the world’s two largest oil- consuming countries, and manufacturing numbers are used as indicators for fuel demand growth. Chinese Manufacturing China’s Purchasing Managers’ Index fell to 50.9 in June from 52 in May, the China Federation of Logistics and Purchasing said in a statement today. The median forecast in a Bloomberg News survey of 13 economists was 51.5. A reading above 50 indicates expansion. “The Chinese number is economically bearish and that would explain some of the selloff today, given that prices had been rising,” said Jason Schenker, president of Prestige Economics LLC in Austin, Texas. China’s report “affirms their tightening of monetary policy is taking effect and impacting oil demand,” said Serene Lim, a commodity strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “China is where the growth is and having this kind of manufacturing activity data slowing down might be affecting the markets.” Dollar Strengthens Prices also slid as the dollar strengthened from a three- week low against the euro, curbing the appeal of commodities as an alternative investment. The dollar gained 0.1 percent and traded at $1.4486 per euro at 10:25 a.m. in New York. Earlier, it touched $1.4437. It was the first advance this week. The Standard & Poor’s GSCI Index of 24 raw materials decreased 0.9 percent to 662.53 in the biggest one-day drop since June 23. Fifteen of the commodities dropped, led by corn, silver, coffee and Brent crude oil, and nine increased. Futures also declined as OPEC boosted supplies and the U.S. offered 30 million barrels of oil from strategic reserves under an International Energy Agency plan to stabilize prices. Oil futures will probably fall next week amid signals that the economy is slowing as the first oil from strategic reserves enters the market, a Bloomberg News survey showed. Fourteen of 36 analysts, or 39 percent, forecast oil will drop through July 8. Eight respondents, or 22 percent, predicted prices will increase and 14 estimated there will be little change. Last week, 44 percent of those surveyed said futures would drop. To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net. To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net.

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