Oil nudged up from steep losses on Wednesday as traders looked toward an expected decline in weekly U.S. crude and gasoline stocks after discounting the threat of a significantly weakened Hurricane Dean to oil flows.
U.S. crude moved higher to just under $70, recovering from Tuesday's 2% fall that took the market to its lowest since late June. London Brent crude was also up.
The U.S. weekly oil inventory data, to be released later in the day, is expected to show a sharp fall of 2.8 million barrels in crude stocks, and a drawdown of 900,000 barrels in gasoline inventories, a Reuters poll of analysts showed.
But distillate stocks are to rise by 800,000 barrels, which may ease pre-winter worries.
"Hurricane Dean is no longer a concern as oil installations in the U.S. Gulf are expected to be safe, so traders are shifting focus to the inventory data now," said Lee Moon-dae, crude analyst at the Korea Energy Economic Institute.
The hurricane, which boosted prices last week when forecasts showed it could potentially head towards the Gulf, weakened to a Category 1 hurricane from a maximum severity Category 5 storm after passing over Mexico's Yucantan Peninsula toward the Campeche Sound, where oil fields are located.
As a precaution, Mexico has shut in 2.65 million barrels per day of production -- slightly more than Venezuela's total output -- until Friday, but analysts said Dean appeared unlikely to do any lasting damage as the Mexican fields are in shallow waters.
Oil prices have also come under pressure from growing fears that financial market turmoil could slow economic growth, although world stock markets appeared to settle down on Tuesday.
Demand from top Asian consumers showed little sign of slowing, with implied consumption in China rising 5 percent in July from a year ago while South Korean domestic sales leapt 8 percent, data showed.
For the first seven months of the year, oil demand in China was up 4.5% from a year earlier at 6.9 million bpd, although Beijing's efforts to cool its booming economy with another official interest rate rise might check growth.