Oil hovered near the highest price levels in more than two years, as accelerating manufacturing activity in industrialized economies and winter weather fanned expectations that U.S. crude inventories will continue to drain.

U.S. crude for February fell 12 cents to $91.43 a barrel at 0721 GMT (2:21 a.m. ET), about a dollar below Monday's peak of $92.58, the highest intraday price since early October 2008.

ICE Brent was unchanged at $94.84, having topped $96 on Monday for the first time since 2008.

Oil sentiment has turned decidedly bullish, partly driven by unusually cold weather, but more due to an increasingly optimistic consensus view on 2011 economic performance, especially for the U.S., JPMorgan analysts led by Lawrence Eagles said.

Prices rallied on Monday, stoked by accelerating manufacturing activity in industrialized economies and icy weather.

Crude oil inventories in the United States, the world's top consumer, probably fell for the fifth-straight time last week, down by 1.7 million barrels, a Reuters poll ahead of weekly supply data showed on Monday.

Refiners continued to use up more of their stored crude supplies while holding off on imports to lower their year-end taxes, analysts said.

Industry group American Petroleum Institute (API) will release its inventory report on Tuesday at 2130 GMT, while the U.S. Energy Information Administration will follow with government statistics at 1530 GMT on Wednesday.

PEAK HEATING DEMAND

Earlier on Tuesday, prices slipped as much as 27 cents on expectations that fuel demand will ease after the approaching peak of the Northern Hemisphere heating season.

Increasing demand for heating oil is helping to reduce the inventory overhang, said Credit Suisse analysts including Stefan Graber.

However, this is likely to be temporary as heating oil demand usually peaks around mid-January. While the short-term technical trend and momentum indicators remain positive, we think that ample OPEC spare production capacity is likely to cap the upside.

U.S. stockpiles of gasoline and distillates including heating oil and diesel probably increased in the week ending December 31, the survey showed.

Distillate stocks were projected to have gained 300,000 barrels on average as overall demand was unchanged, the poll showed, while gasoline inventories were also forecast to have added 300,000 barrels.

Total U.S. heating demand this week was expected to be only 0.5 percent above normal, the U.S. National Weather Service said, and heating oil demand was 4.3 percent below normal.

MACROECONOMIC BOOST

Manufacturing in the United States and Europe accelerated in December, while growth in China and India slowed to more sustainable levels in another boost for the global economic outlook.

The deceleration in manufacturing growth in China and India eased some concerns about possible overheating in Asia.

We are still positive that growth in Asia will continue with the caveat that inflationary pressures don't force governments to undertake tightening measures beyond what the market is expecting, Chen Xin Yi, assistant vice president at Barclays Capital in Singapore said.

U.S. crude futures remain in a stubborn contango, a price structure where prompt oil is cheaper than barrels for later delivery. This market condition encourages storage.

The spread between front-month February and March crude futures had the premium for March crude at almost $1 on Tuesday.

In other markets, Japan's Nikkei average rose to the highest level in more than seven months on Tuesday after global shares resumed their rally on stronger manufacturing data the day before. <.T> Copper hit a record high in London.

World stocks rallied in the first trading session of 2011 on Monday, while U.S. Treasuries prices fell as the manufacturing numbers -- which followed positive U.S. economic data last week -- suggested the world recovery continues to gain momentum, encouraging investors to take on more risk.

The next big test for the U.S. economy comes on Friday when the government will publish its December jobs report.

(Editing by Ed Lane)