Oil rose toward $76 on Tuesday, drawing support from forecasts of reduced crude stockpiles in the United States, but wary after a Greek sovereign debt downgrade that underlined the extent of the euro-zone crisis.
Moody's ratings agency on Monday cut Greek sovereign debt by four notches to junk status.
Fellow Euro-zone struggler Spain also admitted the European financial crisis was affecting the country's banks and foreign banks were refusing to lend to some of them.
Although the oil market rallied on Tuesday, analysts said it was struggling to shake off lingering nervousness across global financial markets about investing in riskier assets.
Basically, it's a tug of war between the credit consideration, particularly the Greek downgrade and prospects of European growth and the API (American Petroleum Institute) data, said Paul Harris, analyst at Bank of Ireland. Traders are happy to play the range.
U.S. crude futures were 73 cents higher at $75.85 a barrel by 1346 GMT, compared with a 19-month peak above $87 hit in early May.
Front-month European Brent futures, which expire at close of trade, rose 65 cents to $75.85, just off a session high of $76.26.
The market will take further direction from industry data for publication at 2030 GMT, followed by government data on Wednesday, which will provide the next indication of supply and demand from the world's biggest energy consumer the United States.
A preliminary Reuters poll of analysts predicted unrefined crude inventories would have fallen by 1.4 million barrels in the week to June 11.
Stores of refined products were expected to have increased slightly. Distillate fuel, including heating oil and diesel, was forecast to rise by 800,000 barrels and gasoline inventories by 500,000 barrels.
Unless there are any major surprises, analysts expect oil to remain closely correlated to international financial markets.
Today there is only one global market. There is a very high correlation between oil and equities, said Olivier Jakob of Petromatrix. To break away from that correlation is going to take something very significant.
The MSCI All-Country World Index .MIWD00000PUS gained 0.68 percent.
The depth of Europe's problems has raised the possibility even Asian demand for fuel, long-regarded as an all-but infallible driver of future consumption, could wane.
China's Banking Regulatory Commission (CBRC) said on Tuesday the global economic recovery was likely to be slow and tortuous and China faced risks from a multitude of factors including trade protectionism and bad real estate loans.
Overall, demand from China, the world's second-largest energy consumer, was expected to stay robust.
The Paris-based International Energy Agency said last week in its monthly market report Chinese demand had grown by 12.7 percent in April year-on-year.
Analysts trawling for bullish factors have cited forecasts the U.S. hurricane season, which runs until November, will be particularly active, with the potential to disrupt oil infrastructure in the U.S. Gulf of Mexico and to make BP's (BP.L) efforts to contain the biggest oil spill in U.S. history even harder.
The oil market was monitoring a weather system that the U.S. National Hurricane Center said had a 40 percent chance of becoming a tropical cyclone in the next 48 hours.
(Additional reporting by Alejandro Barbajosa; editing by William Hardy)