Oil crept above $74 on Monday in line with a timid recovery across financial markets, but was set for its biggest monthly loss in 18 months after European economic crisis raised the prospect of reduced fuel demand.

The euro rose modestly against the dollar on Monday and Asian and European markets edged higher, but they remained under pressure following Fitch's downgrade of Spain's credit rating on Friday.

Chinese Premier Wen Jiabao on Monday underlined the possibility of more bad news to come, saying global growth was still vulnerable to sovereign debt risks.

U.S. crude for July delivery rose 22 cents to $74.19 a barrel by 1548 GMT, after settling down 58 cents on Friday.

London Brent crude rose 36 cents to $74.38 in thin trade as the U.S. and UK financial markets are closed on Monday for public holidays.

Front-month U.S. crude, which hit a 19-month high of $87.15 at the start of May, has so far fallen by 14 percent since the end of April in the steepest monthly drop since late 2008 when the market was crashing from a record of $147.27 in July that year.

Analysts say oil has moved into a range that could endure.

It's been a bad month across asset classes, said Olivier Jakob of Petromatrix.

But the oil market is now pretty well balanced. For us $70-$80 is something which is valid. We don't really see what could justify prices over $85 and below $70, you would start to see some consumer hedging.


The $70-$80 range is also the level members of the Organization of the Petroleum Exporting Countries have said they favor as acceptable for consumers and producers, which has led to a market assumption a sustained drop below $70 would inspire improved OPEC discipline.

According to the latest Reuters survey, OPEC is only delivering 51 percent of agreed output curbs.

At the same time the group's surplus capacity, which it said earlier this year stood at more than 6 million barrels per day, is likely to prevent the market rising strongly in the medium term especially as prospects for oil demand are very uncertain.

A near-term demand boost should come from the U.S. driving season, considered to begin with the U.S. long holiday weekend that ended on Monday.

Some bullish sentiment could also derive from the National Oceanic and Atmospheric Administration's (NOAA) prediction the 2010 Atlantic storm season could produce as many as 14 hurricanes.

They could disrupt supplies in the U.S. Gulf of Mexico, where BP's environmentally devastating oil spill has long-term implications for oil supply and has led to a six-month suspension of exploratory deepwater drilling.

(Additional reporting by Judy Hua in Singapore; editing by James Jukwey)