Brent slipped as Chinese shares fell 6 percent, pulling Wall Street lower at the open and also dragging down Asian and European stocks as well as emerging market currencies and commodities.
U.S. crude climbed after housing starts in the United States hit a near eight-year high in July as builders ramped up construction of single-family homes, suggesting that the economy was firing on almost all cylinders.
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Crude inventories in the United States likely fell 600,000 barrels in the week to Aug. 14, a Reuters survey of analysts showed ahead of an industry report later on Tuesday from the American Petroleum Institute (API) and government data due on Wednesday from the Energy Information Administration.
"Short covering rallies can be violent to the upside and I would not be surprised to see it happen today with U.S. crude given the approaching expiry of its front-month contract," said Tariq Zahir, managing member at Tyche Capital Advisors in Laurel Hollow, New York.
Still, many oil traders were positioning themselves to profit from a further drop in U.S. prices, buying "puts"— options to sell contracts once they have fallen to a particular level—at prices as low as $30 a barrel.
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Both Brent and U.S. crude are down more than half in value from a year ago. They rallied earlier this year, but have fallen about a third below peaks hit in May.
Money managers and hedge funds have cut their net long positions in U.S. crude to 2010 lows and in Brent to December 2014 lows, on an apparent growing consensus that oil prices will likely remain low for a while, data shows.