Oil prices edged up on Tuesday to trade close to $114 a barrel after weak European economic data proved to be slightly less gloomy than anticipated and ahead of a U.S. report expected to show a drop in oil stockpiles.
The euro zone's debt-ravaged economy shrank in the second quarter, having flatlined in the first, despite continued German growth which economists said could soon be snuffed out.
The euro zone economy shrank in the April-to-June period, in line with expectations, as businesses and consumers reined in spending although second-quarter GDP data from France and Germany was better than expected.
But, Germany's forward-looking ZEW sentiment index has dampened hopes the euro zone stalwart will be able to decouple itself from the region's economic downturn, after it dropped unexpectedly in August.
Brent crude rose 34 cents to $113.94 a barrel by 1028 GMT, after closing 65 cents up at its highest settlement since May 3.
U.S. crude firmed by 38 cents to $93.11 a barrel.
Apart from European growth numbers, markets were also eyeing July retail sales data from the United States for an indication on the health of the world's biggest oil buyer. Economists in a Reuters survey expect a 0.3 percent rise compared with a 0.5 percent decrease in June.
"Investors will be looking for a positive retail sales number in July to turn around a succession of weaker months," Ric Spooner, chief market analyst at CMC Markets, said in a note.
Prices also remained supported by underlying supply worries stemming from tensions in the Middle East and falling North Sea production in September.
"The Brent field problems, reduced stocks in the U.S., hurricane season, Iran tensions and threats from Israel to crush their nuclear ambitions, unrest in Syria are all adding to the melting pot," said Robert Montefusco, oil trader at Sucden Financial in London.
"Demand is not really there but these factors are adding up to the bullish camp."
NORTH SEA FACTOR
Analysts at ANZ said in a daily note that Brent may stabilise in a $110-115 range, with the increase in tension in the Middle East or a steeper decline in North Sea output bringing "the $120 technical target into play".
A fall in North Sea production of about 17 percent in September from August, mainly due to a drop in Forties crude output continued to support the European benchmark and steep backwardation between the front months.
The projected output fall has also contributed to the widening WTI-Brent spread, which has reached a four-month high.
The September spread is fluctuating over $20 a barrel, counterbalancing the narrowing effect of the Seaway pipeline reversal, which began pumping in mid-May, allowing crude stocks from Cushing to reach the U.S. Gulf coast.
U.S. CRUDE STOCKS
U.S. crude stocks data due later in the day from industry group the American Petroleum Institute (API) should also provide pointers on demand growth in the world's largest oil consumer.
U.S. crude stockpiles were forecast to have fallen by 1.6 million barrels in the week to Aug. 10, declining for a third straight week on lower imports, a preliminary Reuters poll of seven analysts showed on Monday.
The API data will be followed by more closely watched numbers from the U.S. Energy Department on Wednesday. (Reporting by Julia Payne in London, Manash Goswani in Singapore,; Editing by Himani Sarkar and Alison Birrane)