U.S. crude oil futures climbed on Tuesday after the euro and equities markets rose when debt auctions in Europe bolstered investor confidence in global economic recovery.
The euro is at its intraday highs and (oil) prices are nearing the 200-day moving average at $76.77, a make-or-break point for bulls and bears, said Stephen Schork, president at the Schork Group in Villanova, Pennsylvania.
At 11:43 a.m. EDT, U.S. crude futures were up $1.33, or 1.77 percent, at $76.45 a barrel, having traded as high as $76.70.
In London, front-month ICE Brent July crude futures, which expire at close of trade, rose $1 to $76.20, at a deficit to it's U.S. crude counterpart, but with the spread seesawing much of the session.
Global stocks gained and the euro rose as debt auctions in Spain and other countries in Europe bolstered investors' confidence about the state of the euro zone's finances.
Spain admitted the European financial crisis was affecting the country's banks and foreign banks were refusing to lend to some of them.
Ratings agency Moody's downgrade of Greece's bonds limited crude oil's strong rise on Monday.
The oil market has rallied even though 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 recently have been trading between the May 20 low of $64.24, the weakest front-month price since July 30, 2009, and the 2010 peak of $87.15 struck on May 3.
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.
As the euro strengthened on Tuesday, the dollar index .DXY, measuring the U.S. currency against a basket of currencies, slipped.
The depth of Europe's problems has raised the possibility that even Asia's fuel demand, long expected to be the driver of future consumption, could wane.
China's Banking Regulatory Commission 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.
NEXT FOCUS: INVENTORIES
The market will take further direction from weekly inventory reports, starting with industry data from the American Petroleum Institute on Tuesday at 4:30 p.m. EDT (2030 GMT), followed by government data on Wednesday.
A preliminary Reuters poll of analysts on Monday estimated crude oil 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.
Other recent factors cited as supportive to oil prices have been forecasts the U.S. hurricane season, which runs until November, will be particularly active [ID:nN2798815] and delays in U.S. Gulf of Mexico drilling in response to BP Plc's (BP.L) oil spill.
The National Hurricane Center said Tuesday it cut to 30 percent the chance that a low-pressure system in the central Atlantic Ocean would develop into a cyclone.
(Additional reporting by Alejandro Barbajosa in Singapore and Barbara Lewis in London; Editing by Walter Bagley)