Oil prices ease as investors fret over demand outlook

(Updates at 1:00 p.m. ET)

By Arathy Somasekhar

HOUSTON, June 25 (Reuters) - Crude oil prices eased on Tuesday as weak U.S. consumer confidence data added to concern about the U.S. economic outlook and investors scrutinized summer driving demand.

Brent futures for August settlement were down 77 cents, or 0.9%, at $85.24 a barrel by 01:20 p.m. EDT (1720 GMT). U.S. crude futures traded at $81.05, down 58 cents or 0.7%.

Both benchmarks gained about 3% last week, marking two straight weeks of gains, and taking them to their highest since April.

U.S. consumer confidence decreased in June and although households remained upbeat about the labor market and expected inflation to moderate over the next year, concerns about a weakening economy could mean reduced gasoline demand.

High inventory levels have made investors nervous about how robust summer driving demand will be.

Upcoming data, however, is expected to show shrinking fuel stocks.

U.S. crude oil and gasoline stockpiles were expected to have fallen while distillate inventories likely rose last week, a preliminary Reuters poll showed on Monday.

U.S. inventory data from industry group the American Petroleum Institute is expected later on Tuesday. Official government data is due Wednesday.

While supplies could be falling, consumer spending power and demand can depend on the timing of Federal Reserve rate cuts.

Fed Governor Lisa Cook said on Tuesday the U.S. central bank is on track for a rate cut if the economy’s performance meets her expectations, but she declined to say when the Fed will be able to act.

"The Federal Reserve's decision on interest rates is still mixed, and most of the crude market has priced in a quarter percent cut by September," said Dennis Kissler, senior vice president of trading at BOK Financial.

Oil was still supported by supply disruption linked to Ukrainian attacks on Russian oil infrastructure. On June 21, Ukrainian drones hit four refineries, including the Ilsky refinery, one of the main fuel producers in southern Russia.

Worries of escalating tensions between Israel and Iran-backed group Hezbollah have also helped keep a floor on prices, analysts said.

Israeli forces killed at least 24 Palestinians in three separate airstrikes on Gaza City early on Tuesday, Gaza health officials and medics said.

More than eight months into the war, international mediation backed by the U.S. has failed to yield a ceasefire agreement.

"Geopolitical pressures continue to roil the oil market from multiple fronts... (the) tensions are expected to persist amid failed efforts to broker ceasefires," said Claudio Galimberti, a director at consultancy Rystad Energy. (Reporting by Arathy Somasekhar in Houston, Deep Vakil and Arunima Kumar in Bengaluru; Additional reporting by Emily Chow in Singapore; Editing by David Goodman, Jan Harvey and Barbara Lewis)