Crude futures settled higher Monday, as a rebound in the euro from session lows helped halt oil's earlier retreat amid Greek default fears.
Light, sweet crude for October delivery settled 95 cents, or 1.1%, higher at $88.19 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange ended 55 cents lower at $112.22 a barrel.
After dropping nearly 2% early Monday, U.S. crude prices rebounded as traders betting on dropping prices locked in profits. The euro also rebounded, from lows of $1.3500 overnight to recently trade at $1.3591.
Investors have used the euro as a proxy measurement of Europe's economic health in recent months. After Greek default fears intensified last week, roiling markets, the euro's rebound from deeper drops offered a brief respite from worries about Europe's financial footing.
"It looked like this morning we were going to fall off the map, and we didn't," said Phil Flynn, an oil analyst with PFG Best. "As far as we know, the euro is still in business, Greece hasn't defaulted, yet, so we're bouncing a little bit."
Investors in oil and other markets are worried that the situation in Europe could make finding credit difficult, threatening to undercut the tepid recovery across global markets. There are concerns that French banks in particular could be threatened by their holdings of Greek and other risky sovereign debt.
Europe's debt troubles have kept oil traders' attention despite increasing signs of dislocations within the physical crude market.
Europe's Brent contract is trading near a record premium to its U.S. counterpart. And the discount for U.S.-traded contracts that expire in October compared to later this year has narrowed sharply.
The price for a November futures contract is just 12 cents higher than the front-month October contract, the narrowest spread since April and an indication that oil demand may be outpacing supply.
"Some of these spreads are painting a slightly bullish picture for the market," said Peter Donovan, vice president and broker at Vantage Trading in New York.
U.S. oil inventories are expected to fall by 3.3 million barrels in data due Wednesday from the Department of Energy, according to a survey by Dow Jones Newswires. Gasoline stocks are seen falling by 900,000 barrels. Stocks of distillates, which include heating oil and diesel, are expected to rise by 500,000 barrels.
The Organization of Petroleum Exporting Countries on Monday trimmed its 2011 and 2012 oil demand forecast due to the weakening economy, though the group hinted that some of its members could reduce production as a slowing economy dents oil demand.
The International Energy Agency, which represents oil-importing countries, is expected to release its own report Tuesday.
Front-month October reformulated gasoline blendstock, or RBOB, settled 3.28 cents, or 1.2%, lower at $2.7382 a gallon. October heating oil settled down 3.83 cents, or 1.3%, at $2.9475 a gallon.