Singapore - Oil prices eased to below $79 a barrel on Tuesday, as tropical storm Ida that cut US oil and gas supplies was downgraded from a powerful hurricane and US crude oil stockpiles were forecast to rise slightly.
A surge in global equities that cemented hopes of an economic recovery and a sharp fall in the US dollar helped temper oil's drop.
US crude for December delivery dropped 50 cents to $78.92 a barrel by 03:11 GMT, after settling up $2 on Monday.
London Brent crude dipped 46 cents to $77.31.
Although oil prices have risen 77% so far this year, they are still nearly 47% below their high of more than $147 a barrel struck in July last year.
"People are more confident about a global recovery due to positive economic news except for the (US) unemployment numbers which are a lagging indicator," said Tony Nunan, risk management executive at Mitsubishi in Tokyo.
Global stocks surged on Monday after the Group of 20 finance ministers pledged to keep economic stimulus programs in place until a recovery was assured.
In the US, the Dow Jones Industrial Average rose to a 13-month high as US stocks jumped 2% or more and helped dull the allure of government debt.
A bigger-than-expected increase in China's pump prices on Monday suggested that Beijing saw little danger of the inflationary worries that beset price rise decisions as little as a year ago.
The 7% rise in China's retail gasoline and diesel prices, or 480 yuan per tonne, is not seen curbing Chinese oil demand, which is instead expected to grow and support global oil markets.
The US dollar fell to a 15-month low against a basket of major currencies, lifting gold prices to a new record and the euro above $1.50, and further lending support to oil prices.
The weakness in the greenback was due to expectations for the US interest rates to stay near zero, that prompted investors to use it as funding for carry trades in higher yielding assets.
Ida, the first real storm threat of the 2009 season, was downgraded from a hurricane on Monday, but production remained curtailed as producers waited for the storm to pass over the Gulf.
Ida shut in 29.6% of oil production and 27.5% of gas output from the Gulf of Mexico, the US Minerals Management Service said on Monday.
US crude oil inventories last week look to have risen slightly due to higher imports, according to analysts polled by Reuters late on Monday.
Industry group American Petroleum Institute (API) will release weekly inventory data later on Tuesday, while a report from the US Energy Information Administration (EIA) will be delayed from Wednesday to Thursday due to a holiday.
- Reuters