Later, oil prices were buoyed by news that the Institute for Supply Management said its manufacturing purchasing managers' index fell only to 50.6 from 50.9 in July. Economists surveyed by Dow Jones Newswires had expected the August PMI to come in at 49.0, which would have been below the 50 reading which indicates expanding activity.
The ISM figure "was widely interpreted as further evidence that a recession will be avoided," said Jim Ritterbusch, president of Ritterbusch and Associates.
Traders said bullish economic data would be likely spark a further rally in oil on the expectation that a recovering economy would lift what has been sluggish petroleum demand, as an especially weak summer driving season comes to an end. Data released by the Energy Information Administration this week showed second-quarter U.S. gasoline demand fell 3.6% from a year ago and was the lowest for the early part of the summer driving season since 2001. Weekly data for July and August show demand lagged a year ago by 1.6%.
Reformulated gasoline blendstocks futures for October settled 1.64 cents higher, at $2.8927 a gallon, as some East Coast refineries have yet resumed full operations after shutdowns related to Hurricane Irene, which struck the region on Sunday.
Heating oil futures for October delivery settled 3.22 cents lower at $3.0518 a gallon.