Oil fell on Tuesday, pressured by a decline in European stock markets and a sharp drop in US housing starts but prices found some support from expectations of lower crude inventories.

European shares declined, dragged lower by weakness in bank stocks, which were weakened by Goldman Sachs' announcement of lower second-quarter earnings.

US macro-economic data also hit the oil price, with housing starts falling by 5 per cent to their lowest level in eight months, according to the US Commerce Department.

Fears of a double-dip recession have periodically hit global stock markets over the past few months and slides in equities have soured sentiment towards oil.

US crude for August delivery fell 42 cents to $76.12 a barrel by 1311 GMT. The August US crude contract expires on Tuesday. The more liquid September future was trading 42 cents lower at $76.48.

Front-month ICE Brent crude was down 42 cents to $75.20.

Commenting on current oil price trends, Michael Hewson of CMC Markets in London said: "It's very recovery-driven." He added: "I certainly think it's about perceptions of whether the global economy is going to double dip".

Inventories

US crude inventories fell 1 million barrels on average last week, according to a Reuters survey on Monday. The poll also predicted that stockpiles of distillate fuel, including heating oil and diesel, rose 1.6 million barrels, extending the build-up to the eighth straight week.

While the forecasts for a fourth consecutive weekly drop in US crude inventories were supportive, they were countered by bearish predictions of a rise in oil products in the data from the American Petroleum Institute, due out at 2030 GMT.

The US Department of Energy will publish its own oil statistics on Wednesday at 1430 GMT.

Prices have been stuck in a range between $71 and $80 for more than six weeks as volatility related to the European debt crisis has dwindled. A tighter crude market has been offset by weaker US macroeconomic indicators, signalling a slower recovery in the world's largest economy.

Adding some support for oil, a tropical wave centred around Puerto Rico had a 40 per cent chance of becoming a tropic depression, the US National Hurricane Center said on Tuesday.

The Hurricane Center has forecast this year's Atlantic storm season may be the most intense since 2005, when hurricanes Katrina and Rita nearly paralysed the Gulf of Mexico US oil industry for weeks, boosting oil prices.

China overtook the US last year to become the world's largest energy user, according to a Financial Times report on Monday, citing the International Energy Agency.

China's rise to the top ranking was faster than had been expected in part because the United States has outpaced China in improving energy efficiency measures over the past decade.

But a senior Chinese official on Tuesday questioned the IEA's conclusion that China had overtaken the US.

The IEA has had a relatively high estimate of China's energy consumption and carbon dioxide emissions, said Zhou Xian, spokesperson for China's top energy agency. But he declined to give alternative estimates. – Reuters