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Ample supplies sends oil price lower to near $89 despite rising Middle East tension

Ample supplies of oil turned prices lower Tuesday despite fighting between Israel and Palestinians that looks set to escalate sharply if diplomatic efforts fail.

Benchmark crude for December delivery was down 19 cents to $89.09 per barrel at midday Bangkok time in electronic trading on the New York Mercantile Exchange.

The contract rose $2.36, or 2.3 percent, to finish at $89.28 per barrel in New York on Monday, its highest point in nearly a month on rising concerns about the Middle East as well as optimism that U.S. political leaders will reach a budget deal before the end of the year, avoiding a hit to the economy.

But the price run-up may have been overdone, analysts said, pointing to more-than-adequate supplies.

Carl Larry of Oil Outlooks and Opinions said in an email commentary that U.S. oil production rose by 1 million barrels a day over the past year. In addition, U.S. lawmakers are pressing President Barack Obama to support TransCanada's proposed Keystone XL pipeline to transport crude oil from Canada to Gulf Coast refineries.

"We think that the production pace is only going to increase into 2013," Larry said. "So we're looking at two important steps to American oil independence."

While the escalating conflict between Israel and Hamas has raised concerns about Middle East crude supplies, analysts say the risk of immediate supply disruption isn't great because neither side is an oil producer.

Still, the risk could grow if the conflict engulfs other Middle Eastern countries.

Brent crude, which is used to price international varieties of oil, was down 16 cents to $111.54 per barrel in London.

In other energy futures trading on the New York Mercantile Exchange:

— Wholesale gasoline fell 0.5 cent to $2.727 a gallon.

— Heating oil was steady at $3.08 a gallon.

— Natural gas rose 5.5 cents to $3.774 per 1,000 cubic feet.

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