Oil prices were stuck near $79 a barrel on Tuesday as investors weighed a three-day stock market rally against signs of sluggish U.S. crude demand.
By early afternoon in Europe, benchmark crude for September delivery was up 9 cents at $79.07 a barrel in electronic trading on the New York Mercantile Exchange. The contract was unchanged to settle at $78.98 on Monday.
Surging U.S. stock markets have underpinned oil prices as traders often look to equities as a barometer of overall investor sentiment. The Dow Jones industrial average rose 1 percent Monday and is up about 4 percent in the last three trading sessions. European stocks were also higher Tuesday.
"In the absence of any clear sign that the economy is going to recover or have a double dip, oil prices have taken almost daily cues from stock markets," said U.S. energy consultancy Cameron Hanover. "These have mostly followed economic indicators, but they have also followed individual earnings reports as insights into major companies, sectors or industries. The bottom line is that it is difficult to tell what oil prices are really following on any given day."
Meanwhile, U.S. crude inventories in recent weeks have either grown or fallen less than analysts expected, suggesting consumption remains tepid. The American Petroleum Institute reports supply data for last week later Tuesday, with the Energy Department's Energy Information Administration reporting Wednesday.
Crude oil stocks are seen to have fallen by 2.3 million barrels, while gasoline stocks are expected to show a build of 1.1 million barrels, according to analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos.
"Oil fundamentals are looking more bearish with each successive EIA report," Ritterbusch and Associates said.
Even though the threat from Tropical Storm Bonnie to oil facilities in the Gulf of Mexico Oil has dissipated, the interruption of oil production in the area provided some support to oil prices.
"Production disruptions in the Gulf of Mexico ... have only been partly restored. As of Monday, 26.7 percent of oil production capacity remains offline, according to the U.S. government," said an energy report from Sucden Financial Research in London. "Forecasts remain for this year's hurricane season to be unusually active."
In other Nymex trading in August contracts, heating oil rose 0.63 cent to $2.0489 a gallon, gasoline advanced 0.24 cent to $2.1082 a gallon and natural gas gained 3.9 cents to $4.651 per 1,000 cubic feet.
In London, Brent crude was up 2 cents to $77.52 a barrel on the ICE Futures exchange.
Associated Press writer Alex Kennedy in Singapore contributed to this report.