Crude drifted lower after hitting a three-month high near $80 on Friday, supported by a storm threat to U.S. Gulf oil installations but pressured by uncertainty over the result of bank stress tests in Europe.
By 0943 GMT (5:43 a.m. EDT), U.S. crude for September was trading 26 cents lower at $79.04 a barrel. ICE Brent crude futures were 28 cents down at $77.54.
U.S. crude briefly touched $79.60, the highest intraday price since early May, following Germany's Ifo survey, which showed a jump in business sentiment in July to reach its highest level in three years.
Support also came from the formation of a tropical storm near the Bahamas on Thursday.
Tropical Storm Bonnie, the second named storm of the 2010 Atlantic hurricane season, will skirt south of Florida and swirl northwest across the oil-rich central Gulf of Mexico, near where BP (BP.L) is cleaning up its massive oil spill, before hitting the Louisiana or Texas coasts, weather models showed.
Analysts said prices may stay in a relatively narrow range, however, as regulators are assessing how 91 banks across Europe would cope with another economic downturn.
The results are expected to be published at 1600 GMT on Friday and will throw light on the impact of the euro zone debt crisis on Europe's banking system.
Investors have been waiting anxiously for these results to judge the strength of the European banking system and its resiliency against further escalations of the sovereign debt crisis, Thorbjorn Bak Jensen, oil market analyst with Global Risk Management in Denmark, said in a daily note.
Positive stress test results, thus further dollar weakness and increased risk appetite, can cause another test of $80-a-barrel resistance. Failure will bring us down back to the strong support at $75 a barrel.
Ahead of the results, Spanish newspaper El Pais reported several of Spain's 18 savings banks, including some that have been involved in recent mergers, have failed to pass tests to see how they would cope with worsened economic conditions. The paper cited financial sources.
Crude oil have climbed about four percent this week.
(Reporting by Ikuko Kurahone in London and Alejandro Barbajosa in Singapore)