Crude futures settled slightly higher Tuesday as traders reacted to improving U.S. services-sector data and factored in an expected drop in oil inventories, while remaining cautious on the European debt crisis.
Light, sweet crude for July delivery settled at $84.29 a barrel, up 31 cents, after wavering around the $84 mark in early afternoon trading. Brent crude on the ICE Futures exchange traded six cents lower at $98.78 a barrel.
The rise was "pretty muted," prompted by traders gaining a broader perspective on the recent selloff, said Kyle Cooper, managing partner of IAF Energy Advisors. Mr. Cooper also said that both oil and equities were responding warily to the "first good economic news we've seen in a while" from the Institute for Supply Management's U.S. nonmanufacturing purchasing managers index, which rose to 53.7 in May. The report came in higher than the 53 that economists were expecting and slightly higher than April's reading of 53.5.
Crude fell by more than $6 last week, and with Europe slumping toward recession, investors are concerned that a slowdown in the U.S. could translate to weaker fuel demand in the world's largest oil consumer. Disappointing U.S. jobs data on Friday led to a broad selloff and renewed worries about the U.S economy.
But analysts expect U.S. data on Wednesday to show that crude-oil stockpiles dropped last week amid increased refinery operations. According to a Dow Jones Newswires survey of 14 analysts, oil inventories are expected to drop 500,000 barrels for the week ended June 1, the first decline after nine straight weeks of increases to a level not seen in 22 years. "Perhaps that's given some support to the market," said Andy Lebow, senior vice president of energy futures at Jefferies Bache.
The closely watched government survey from the Energy Information Administration is due to be released at 10:30 a.m. EDT Wednesday. The American Petroleum Institute, an industry group, will release its survey at 4:30 p.m. EDT Tuesday.
Also, the EIA corrected its U.S. oil demand report released last Wednesday, saying that oil demand in March was 154,000 barrels a day higher than previously reported, at 18.174 million barrels a day.
Still, concerns about the European debt crisis weigh on market participants' minds. On Tuesday, financial chiefs from the Group of Seven nations pressed European leaders to act more aggressively to tame the euro-zone debt crisis. Also, Spain's budget minister asked euro-zone partners to move more quickly on a plan to support its troubled bank sector, adding that the steep risk premiums for its bonds have effectively shut it out of capital markets.
Front-month July reformulated gasoline blendstock, or RBOB, settled 1.4 cents higher at $2.6847 a gallon, and July heating oil settled up 0.67 cent at $2.6336 a gallon.