Crude and Brent oil up

Crude oil ended higher on Tuesday as strong US housing data, a weaker dollar and a positive outlook on the unfolding events of the eurozone debt crisis bolstered demand expectations in the world's top oil consumer. US housing starts rose to a six-month high in June, up 14.6 percent from a month ago, pointing to a resilient economic recovery, data from the Commerce Department showed.
The rally extended as Wall Street jumped following US President Barack Obama's support for a bipartisan proposal that promises to save the country $3.75 trillion in debt-reduction over 10 years. US crude for August delivery ended $1.57 higher at $97.50 a barrel, a day before the contract is set to expire.
Brent crude settled $1.01 higher at $117.06 a barrel after hitting a high of $118.45 earlier in the day.
Analysts said the bullish US economic data trumped worries over the debt crisis across the Atlantic even as German Chancellor Angela Merkel warned a meeting Thursday will not offer spectacular results.
Some 17 European nations will meet Thursday to outline steps to solve the Greek debt crisis. The dollar softened versus the euro and a basket of currencies as the single currency regained some ground after losses in the previous session on worries that the eurozone debt crisis will worsen.
A weaker dollar makes oil and other commodities more affordable for holders of other currencies. "This is a little bit of cautious trading as the European governments looked like they just might get their act together before the Thursday meeting. It all smells and looks like short covering to me," said Dominick Chirichella, senior partner at the Energy Management Institute in New York.
Data from the US Energy Department Wednesday was expected to show a significant draw in crude inventories and keep prices buoyed through the day. A Reuters forecast shows crude oil inventories fell 1.7 million barrels last week, their seventh straight drop.
Despite the Tuesday rally, Brent crude futures prices were confined within the range it traded over the course of the past week and failed to break through resistance around $118.90 a barrel.
Meanwhile, the US September crude contract caught up, narrowing the spread with the European benchmark by 65 cents at $19.14 at 3:35 pm EDT (1935 GMT).
Analysts said the spread between Brent and US crudes narrowed because of the flow of new money into the September contract two days before it starts trading as the front-month contract and a subsequent up-tick in its trading volume.
"Fundamentally, nothing much has changed, but the strength in the housing starts and the strength in the Euro helped find new length this morning," said Carl Larry, Director of Blue Ocean Brokerage in New York.
"We could also see some pressure on Brent crude because of the heavy West African market. There is still a lot of cargoes out there looking for homes," he added.
The day's volumes were thin, with US crude trading 530,000 contracts as of 3:29 pm EDT, 23 percent below the 30-day average. Brent crude traded 401,300 contracts, 26percent below the 30-day average, according to Reuters data.
Along with the upbeat economic news, both crude contracts were supported by expectations the International Energy Agency (IEA) would not release emergency stocks for a second time.
Although the agency hasn't reached an official decision on a possible second dip into member countries' emergency oil reserves, there were no signs of a shortage to warrant such a decision, traders and analysts said.