l towards $96 a barrel on Monday after weak factory data from the United States, Europe and China sparked concerns that the world economy was deteriorating more quickly than anticipated.
The U.S. manufacturing sector unexpectedly contracted in June for the first time since July 2009 as new orders tumbled, an industry report showed on Monday.
Worries over the euro zone crisis also pressured oil as enthusiasm faded over an EU bank bailout deal, which on Friday had helped crude to its fourth-biggest daily gain on record.
News that Iran's National Security and Foreign Policy Committee had drafted a bill calling for Iran to try to stop oil tankers from shipping crude through the Strait of Hormuz helped pare losses.
Brent crude fell $2.50 to a low of $95.30 a barrel before recovering to around $96.30 by 1425 GMT. U.S. crude shed $2.05 to a low of $82.91, but then climbed back to trade around $83.10.
On Friday, Brent crude rose more than $6 a barrel while U.S. crude jumped by more than $7, their fourth-largest daily gains in dollar terms since the contracts were launched.
'Oil is being driven by psychological factors,' said Eugen Weinberg, global head of commodities research at Commerzbank in Frankfurt. 'Today's sell-off is a natural reaction after such enormous gains at the end of last week.'
The U.S. Institute for Supply Management said its index of national factory activity fell to 49.7 from 53.5 the month before, missing expectations of 52.0, according to a Reuters poll of economists.
The data followed similar gloomy assessments of factory activity across Europe and Asia, including China, the world's biggest energy consumer and second biggest economy.
Euro zone manufacturing took another downturn in June and factories are preparing for worse, according to business surveys showing jobs cut at the fastest in two-and-a-half years. The survey showed factories in Germany and France are succumbing to a downturn that started in southern Europe.
Manufacturing in China, the world's second-biggest economy, also worsened in June with export orders, usually an indicator of global economic health and trade flows, posting their biggest fall since December.
Helping reduce the losses was a report from Tehran where Iranian lawmakers said they wanted the Islamic state to block access to the Strait of Hormuz, route of almost a fifth of the world's oil exports.
Iranian threats to block the waterway through which about 17 million barrels a day sailed in 2011 have grown in the past year as U.S. and European sanctions aimed at starving Tehran of funds for its nuclear programme have tightened.
A firm dollar and weaker euro weighed on commodities priced in the U.S. currency.
Oil also found some support from a strike by Norwegian offshore oil workers, which entered its second week on Sunday.
A well-placed trading source said the strike had begun to slow crude loadings in the North Sea and had delayed a cargo of Norwegian Oseberg, part of the North Sea Dated Brent benchmark and the basis of many over-the-counter trades.
Labour unions say they are bracing for a long conflict and possible escalation to further lower output from the eighth-largest oil exporter.
This coincides with the EU ban on Iranian crude imports aimed at choking Iran's export earnings to try to force it to curb a nuclear programme the bloc fears includes weapons development. Tehran says it has no such plan.
Iran dismissed the embargo saying it was fully prepared to counter the impact of sanctions with a $150 billion war chest of foreign reserves.
Iranian oil exports slipped by 180,000 barrels per day (bpd)to 2.95 million bpd in June, according to a Reuters survey of sources at oil companies, OPEC officials and analysts. That would be its lowest output since it produced 2.81 million bpd in 1989, according to figures from the U.S. Energy Information Administration.
(Editing by Anthony Barker) Keywords: MARKETS OIL/
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