Oil fell moderately on Monday as Tropical Storm Bonnie faded over the Gulf of Mexico, but trading was cautious ahead of U.S. economic and corporate earnings data.
Oil traders were reluctant to push oil prices too far in either direction before the release of US figures later in the day. Many are concentrating on the prospects of the United States, since it has been the main source in recent weeks of disappointing economic data that has kept alive fears of an erratic global recovery.
Commenting on the oil market, Eugen Weinberg, head of commodities research at Commerzbank in Frankfurt, said: Most of the action and the fate of today's prices will be decided in the U.S. not in Europe.
He added that in the coming days: if the US data is surprisingly weak, then people might get worried about a double dip (a second leg of recession).
AT 1400 GMT on Monday the United States releases new homes data. U.S. firms such as Lorillard, the cigarette maker, will publish second-quarter earnings during the day. Over the past two weeks, many corporate earnings results have been stronger than expected, but much of the country's economic data has been weaker.
U.S. crude for September delivery fell 69 cents to $78.32 by 6:51 a.m. ET. ICE Brent crude declined 57 cents to $76.88. A Reuters poll of 31 analysts, banks and government agencies saw U.S. crude averaging $79.44 in 2010.
European equities .FTEU3 failed to provide support to oil prices, falling slightly because of growing skepticism that stress tests on European banks, published on Friday, were not strict enough.
Seven of 91 banks failed the tests, with an overall capital shortfall of $3.5 billion euros.
Tropical Depression Bonnie faded overnight and is no longer shown by the National Hurricane Center's outlook, although the threat of the storm did take a bite out of production in the Gulf of Mexico oil area.
However, forecasters have said the 2010 Atlantic hurricane season, which runs from June 1 to November 30, could be the worst since 2005, when Hurricanes Katrina, Rita, and Wilma caused havoc in the Gulf Coast, damaging oil rigs and refineries and forcing sharp cuts in production.
A fire at the weekend forced the closure of Formosa Petrochemicals Corp's (6505.TW) 540,000 barrels per day refinery in Taiwan, with a crude distillation unit expected to be shut long term and other units possibly restarting this week.
In China, Dalian Port Co. (2880.HK) has resumed operations at two of its oil berths and its main 300,000 tonnage berth is expected to reopen soon, the company said on Sunday, after a fire at the port a week ago shut the berths down.
The U.S. economy is not likely to slip back into recession, but letting tax cuts for the wealthiest Americans expire is necessary to show commitment to cutting budget deficits, Treasury Secretary Timothy Geithner said on Sunday.
In a sign of bullishness on oil prices, open interest positions increased on September $85 and $90 call options on Friday compared with a week before, as crude prices rose to near $80 a barrel before ending the session slightly lower.
Separately, BP Plc decided Chief Executive Tony Hayward should step down over his handling of the Gulf of Mexico oil spill and his departure is likely to be announced in the next 36 hours, sources close to the company said.
(Additional reporting by Fayen Wong in Perth; editing by Keiron Henderson)