Oil was slightly higher above $75 on Tuesday as prospects for rising demand in emerging economies offset concern about the impact of Europe's debt crisis.

Spain admitted on Monday that the European financial crisis is taking a toll on the country's banks, while credit ratings agency Moody's slashed Greek sovereign debt by four notches to junk status.

“Certainly Greece is a worry, and I worry about contagion that could cause a double-dip recession, but there are certain economies that are doing very well - Asia is booming,' said Peter McGuire, managing director of Commodity Warrants Australia in Sydney.

US crude prices on Monday pared gains following news of Greece's downgrade but still held onto a 1.8 per cent increase by the settlement. On Tuesday the July contract was up 8 cents at $75.20 a barrel, still down 14 per cent from a 19-month peak above $87 in early May. ICE Brent was up 10 cents to $75.30.

Greece's downgrade on Monday interrupted a global rally in stocks triggered by data showing euro-zone industrial output surged in April.

On Tuesday, Japan's Nikkei index inched down, while the dollar gained almost 0.2 per cent against a basket of currencies.

Emerging markets account for much of the 1.7 million-barrel-a-day growth in oil demand forecast by International Energy Agency (IEA) for this year.

Demand from China, the world's second largest energy consumer, grew by 12.7 per cent in April year-on-year, the IEA said last week, and it is expected to remain robust.

Attention in the oil market was set to turn to weekly inventory reports from top consumer the United States.

Crude oil inventories there probably dropped for the third straight time last week due to lower imports, a preliminary Reuters poll of analysts showed on Monday ahead of weekly industry and government reports later this week.

On average, crude inventories were forecast to have fallen 1.4 million barrels in the week to June 11, the poll of eight analysts showed.

Stockpiles of distillate fuel including heating oil and diesel probably gained 800,000 barrels, while gasoline inventories were expected to have increased by 500,000 barrels.

Industry group American Petroleum Institute will release weekly inventory statistics on Tuesday at 2030 GMT, followed by government data from the Energy Information Administration on Wednesday at 1430 GMT. – Reuters