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Oil ends higher after last-minute reversal

SAN FRANCISCO (MarketWatch) -- Crude-oil futures finished higher Tuesday in a late-session reversal after U.S. equities achieved a similar feat.

Prices had spent most of the floor-trading hours in the red, reeling after German Chancellor Angela Merkel's comments seemed to put the chance of any progress at the coming European Union summit closer to nil.

Crude oil for August delivery (CLQ2) advanced 15 cents, or 0.2%, to settle at $79.36 a barrel on the New York Mercantile Exchange.

With the fortunes of equities and oil futures "tied at the hip," oil prices got a second wind after the S&P 500 headed higher late in the day, said Kyle Cooper, managing director of IAF Advisors in Houston.

The S&P 500 rose to session highs in the last two hours of the stock trading day.

Earlier Tuesday, pessimism reigned after Merkel was quoted as telling members of her party that Europe won't have shared total debt liability "as long as I live," according to a Reuters report.

Merkel's comments "make it even less likely we are going to have some sort of success out of the EU summit," said Bill O'Neill, a principal at Logic Advisors in New Jersey.

The close in the red extended sharp losses for oil Monday, as the commodity was pressured by a stronger dollar and a downbeat session for U.S. stocks.

Tuesday data came in mixed.

Earlier, the S&P/Case-Shiller 20-city composite index gained 1.3% in April, lessening its on-year decline to 1.9% from 2.6%, according to a Tuesday release. Read more on home prices.

Consumer confidence, however, declined for a fourth month, the Conference Board also reported Tuesday. The index fell to 62 in June, its lowest since January. Read more on consumer confidence.

European leaders are scheduled to meet starting on Thursday, amid fresh signs of financial distress in the region.

Cyprus could be the next European nation in line for a bailout, after asking for financial aid on Monday. Read more on Cyprus.

Spain formally asked for help for its banking system on Monday. Later that day, Moody's Investor Service downgraded 28 Spanish banks by between one and four notches. Read more on downgrade.

The developments added to gloom over an already uncertain global economic outlook, which can reduce expectations for future energy demand.

On the supply front, investors will take their first glimpse of weekly U.S. oil inventories later Tuesday, when trade group the American Petroleum Institute is scheduled to report its data. The more closely watched Energy Information Administration report follows on Wednesday.

Analysts polled by Platts expect a drop in crude-oil stocks of one million barrels for the week ended June 22.

Other energy products ended mixed.

July gasoline (RBN2) retreated less than 1 cent to end at $2.65 a gallon.

Heating oil for the same month's delivery (HON2) was up 4 cents, or 1.5%, to $2.58 a gallon. Heating oil has ended higher for three straight sessions.

July natural gas (NGN12) advanced 7 cents, or 2.7%, to trade at $2.78 per million British thermal units, also gathering steam in the last stretch of floor trading.

Tuesday's close was the product's highest since Jan. 11.

In its annual energy outlook out Monday, the Energy Information Administration said rising production of domestic crude oil and natural gas is expected to ease U.S. reliance on imported oil.

The glut of natural gas will spur natural gas burning for power generation, in tandem with a projected increase in renewable energy.

"In our view, the EIA once again appears to be overly optimistic on the oil demand side ... And the risks to our forecast may even be on the downside if sustained cheap natural gas manages to eat into core oil segments such as transportation," analysts at JBC Energy said in a report Tuesday.

The EIA projected U.S. energy demand to grow an average of 0.4% on year up to 2035 as economic growth is expected to remain subpar and energy efficiency projected to increase.