Oil prices pushed up to fresh three-month highs around $82 per barrel on Tuesday, spurred by a fall in the dollar and ahead of U.S. data expected to show a draw in oil inventories.
The market also appeared to receive some support from news Israeli and Lebanese troops fought a rare cross-border skirmish on Tuesday that killed four Lebanese and an Israeli officer in the most serious violence along the frontier since a 2006 war.
Neither Israel nor Lebanon have big oil deposits but traders remember the Arab oil embargo during the Arab-Israeli war in 1973, which disrupted oil flows and triggered panic buying.
U.S. September crude futures were up 63 cents to $81.97 by 1330 GMT (9:30 a.m. EDT) after hitting an intra-day high of $82.47. The last time U.S. crude traded above $82 was on May 5.
The weaker dollar is the main factor pushing oil higher, said Carsten Fritsch, commodities analyst at Commerzbank.
A weaker dollar .DXY helps make oil imports cheaper for non U.S. currency holders.
U.S. inventory data is likely to be supportive as a big decline in U.S. crude oil stocks is on the cards, Fritsch said.
North Sea Brent crude oil futures narrowed their discount to U.S. crude on Tuesday as planned summer maintenance reduced supplies of prompt oil from UK and Norwegian oilfields.
ICE Brent rose more than $1 to a high of $82.25 before easing back a little to trade around $81.70.
Investors were wary after the sharp run-up and ahead of key data. All eyes will be on U.S. non-farm payrolls on Friday.
We moved up too far, too fast yesterday, said Christophe Barret, global oil analyst at Credit Agricole. I expect we will go back into the $75 to $80 range because fundamentals don't support the recent rise.
Asian shares rose to their highest levels in nearly three months on Tuesday, after the euro reached a three-month peak on the back of data showing the U.S. manufacturing sector grew in July for a 12th consecutive month, topping expectations.
But European stocks drifted in early trade and U.S. stocks were expected to open lower. .EU .N
SUPPLIES AND HURRICANES
The oil market's attention will turn to U.S. inventories later on Tuesday, when the American Petroleum Institute will publish industry stockpile figures. Government statistics on supply and demand will follow from the U.S. Energy Information Administration on Wednesday.
U.S. crude oil inventories probably fell last week as imports slipped and the effect of Gulf of Mexico production was interrupted briefly by Tropical Storm Bonnie, a Reuters preliminary survey of analysts on Monday showed.
Crude stocks were expected to have fallen 1 million barrels in the week to July 30, Monday's survey showed.
Supplies of distillates including diesel were forecast to have increased 1.1 million barrels, while gasoline stocks were expected to have fallen 700,000 barrels, breaking a string of five weeks of gains.
A drop in U.S. crude stockpiles would follow a jump of 7.3 million barrels to 360.8 million barrels in the week to July 23, the biggest since 2008, according to last week's EIA report. Last week inventories were also expected to drop because of Bonnie-related disruptions to shipping and production.
Tropical Depression 4, which formed in the middle of the Atlantic Ocean on Monday, was becoming better organized and nearing tropical storm strength, the U.S. National Hurricane Center said, but it was forecast to veer northeast before reaching Florida.
(Additional reporting by Alejandro Barbajosa; editing by Sue Thomas)