Oil rose above $70 a barrel on Tuesday, supported by a weaker dollar and recovering from a sharp fall the previous day, but bulging inventories and slow demand limited gains.

U.S. crude futures rose 99 cents to $70.70 a barrel by 1201 GMT, trimming the previous day's $2.33 drop.

London Brent crude gained 95 cents to $69.64.

This is a small rebound on the back of the dollar. Gold and all commodities are tracking the pull-back of the dollar, said Andrey Kryuchenkov, commodities analyst at VTB Capital in London.

There is still a demand concern capping oil prices.

The dollar fell against other currencies on Tuesday and hit a one-year low against the euro.

Its weakness makes dollar-denominated commodities cheaper for investors holding currencies other than the dollar.

For much of this year, oil has been negatively correlated to the dollar and has moved in tandem with stock markets, which have recovered strongly from multi-year lows touched in March.

World stocks, measured by MSCI's global index, rose by 0.8 percent on Tuesday. The index has risen by 26 percent so far this year.

But many analysts are wary any economic recovery will be much slower and more difficult than the equities markets are implying and that fuel demand will continue to be depressed.

On the other hand, the oil minister of top exporter Saudi Arabia said demand for Saudi crude was increasing and the OPEC would not cut output next year.

The world economy seems to be recovering. I hope it will recover fast and therefore it will impact demand, Ali al-Naimi told Reuters in an interview.

If demand rises of course supply has to match it... Demand for our oil is rising, and so we are -- at least I am -- convinced that economic growth is started and will continue.


Oil prices have more than doubled from their December low of just above $32 a barrel and struck a 2009 high of $75 a barrel in August, but since the start of September they have been trapped in a narrow range between about $68 and $72.

Global investors will watch for clues on the health of the global economy from a two-day U.S. Federal Reserve meeting starting late on Tuesday and a summit of G20 nations later this week.

Oil traders will also look at two sets of weekly oil data from the United States, the world's top energy consumer, for guidance on fundamentals of supply and demand.

Analysts in a Reuters poll forecast the data would show increases in U.S. domestic oil product inventories, including gasoline, diesel and heating oil, because of slack demand.

The figures were also expected to show a drop in crude oil inventories following lower imports.

Industry group American Petroleum Institute will release its weekly oil data at 2030 GMT on Tuesday and the U.S. Energy Information Administration, a government unit, will publish its report on Wednesday.

Customs data from China, the second biggest energy consumer, showed its gasoline exports jumped in August to their highest since early 2007 and diesel exports remained steady.

Chinese domestic oil product demand has not kept up with record high refinery operation rates, prompting oil companies to exports fuels in large volumes.(Additional reporting by Fayen Wong in Perth; editing by Keiron Henderson)