Oil hovered above $79 a barrel Wednesday as the market awaited the outcome of a summit of European leaders and a report showed a surprise increase in U.S. crude supplies that suggested demand remains weak.
By early afternoon in Europe, benchmark oil for August delivery was down 10 cents at $79.26 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell 15 cents to settle at $79.36 in New York on Tuesday.
In London, Brent crude for August delivery was down 21 cents at $92.81 per barrel on the ICE Futures exchange.
The American Petroleum Institute said late Tuesday that crude inventories rose 500,000 barrels last week. Analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., had predicted a drop of 1 million barrels.
Inventories of gasoline increased 400,000 barrels last week while distillates fell 1 million barrels, the API said.
The Energy Department's Energy Information Administration reports its weekly supply data — the market benchmark — later Wednesday.
Crude has fallen to near eight-month lows from $106 less than two months ago amid signs economic growth and oil demand are slowing in the U.S., Europe and China.
Focus is turning to the two-day summit of EU leaders starting Thursday in Brussels. No substantial progress in solving the eurozone's debt crisis is expected at the meeting, which may lead to renewed pessimism about European demand for crude.
"The tentative economic conditions in the eurozone continue to weigh on the markets," analysts at Sucden Financial in London said.
Traders will be closely watching the tightening of European sanctions July 1 against Iran over the country's nuclear program. Some analysts expect increased crude output by Saudi Arabia and other producers, and continuing Iran oil sales to China, Japan and India to offset any reduction in Iran's exports.
"This will certainly blunt some of the impact of the EU sanctions" on overall oil supply, said Richard Soultanian, an energy analyst with NUS Consulting. "We expect the results of the upcoming implementation of the EU embargo to be muted."
Soultanian said he expects crude to soon drop to as low as the mid-$60s.
In other energy trading, heating oil was down 0.51 cent at $2.5681 per gallon while gasoline futures slid 0.24 cent at $2.5205 per gallon. Natural gas added 5.9 cents at $2.866 per 1,000 cubic feet.
___Alex Kennedy in Singapore contributed to this report.