Oil pared gains and stood below $67 a barrel on Tuesday as weak headline U.S. housing data renewed doubts over the pace of economic recovery in the world's largest energy user. Investors were also awaiting weekly U.S. fuel inventory reports due later on Tuesday and Wednesday, expected to show crude stockpiles have risen for the fourth straight week.

U.S. crude for September delivery was up 12 cents at $66.87 a barrel by 1340 GMT (9:40 a.m. EDT), off an earlier high of $67.80. London Brent crude for October was down 35 cents at $70.19.

U.S. stock market futures pared gains after a government report said on Tuesday new U.S. housing starts and permits unexpectedly fell in July, increasing fears that talk of economic recovery may have been overdone.

Meanwhile, U.S. producer prices fell by a larger-than-expected amount in July and notched a record decline compared with a year earlier as the U.S. recession continued to keep inflation at bay.

The housing starts were a bit disappointing, but the inflation number came in better than expected...I think we are going to be in consolidation mode. There's some profit-taking going on right now, said John Spinello, chief treasury strategist at Jefferies & Co in New York.

Dan Flynn, analyst at PFGBest Research in Chicago, said: The PPI number and the housing data helped push crude lower.

Oil investors will now turn their focus to inventory data.

The release of weekly API fuel stocks data at 2030 GMT (4:30 p.m. EDT) will be followed by U.S. government figures from the Energy Information Agency on Wednesday with analysts expecting more signs of weak U.S. demand.


A preliminary Reuters poll of analysts predicts crude stocks rose by 1 million barrels, as higher imports offset a slight increase in refinery activity.

Distillate stocks were seen up 400,000 barrels and gasoline stocks down 1.4 million barrels.

The previous session's sell-off in oil and equities markets was prompted by concerns over the pace of global recovery.

U.S. equities suffered their worst loss in seven weeks on Monday while Chinese shares saw their biggest daily percentage drop in nine months.

Oil investors continued to monitor the growth of Hurricane Bill, the first of this year's season, which might disrupt Gulf of Mexico oil and gas production.

Hurricane Bill was expected to strengthen to a major category 3 storm by Wednesday, while the remnants of Tropical Storm Ana dissipated without threatening the U.S. Gulf oil patch, the U.S. National Hurricane Center said.

Energy markets are jittery over Gulf storms because the region produces a quarter of U.S. oil and 15 percent of its natural gas.

(Editing by James Jukwey)