Oil fell on Monday as Tropical Storm Bonnie faded over the Gulf of Mexico, and the oil market was cautious ahead of the release at 1400 GMT of official U.S. data on the sale of new homes.
"Most of the action and the fate of today's prices will be decided in the U.S.," said Eugen Weinberg, head of commodities research at Commerzbank in Frankfurt. "If the U.S. data is surprisingly weak, then people might get worried about a double dip."
U.S. crude for September delivery fell 25 cents to $78.73 by 1316 GMT. ICE Brent crude declined 25 cents to $77.20. A Reuters poll of 31 analysts, banks and government agencies saw U.S. crude averaging $79.44 in 2010.
Cigarette maker Lorillard Inc maintained the theme of better-than-expected quarterly earnings data among U.S. companies, by reporting quarterly profit that beat expectations on Monday ahead of Wall Street's opening.
European equities failed to provide support to oil prices, falling slightly because of growing scepticism that stress tests on European banks, published on Friday, were not strict enough. Seven of 91 banks failed the tests, with an overall capital shortfall of $3.5 billion euros.
Tropical Depression Bonnie faded overnight and is no longer shown by the National Hurricane Center's outlook, although the threat of the storm did take a bite out of production in the Gulf of Mexico oil area.
The U.S. National Hurricane Center said on Monday that no tropical cyclone formation was expected during the next 48 hours.
However, forecasters have said the 2010 Atlantic hurricane season, which runs from June 1 to Nov. 30, could be the worst since 2005, when Hurricanes Katrina, Rita, and Wilma caused havoc in the Gulf Coast, damaging oil rigs and refineries and forcing sharp cuts in production.
In China, Dalian Port Co. resumed operations at two of its oil berths and its main 300,000 tonnage berth is expected to reopen soon, the company said on Sunday, after a fire at the port a week ago shut the berths down.
In a sign of bullishness on oil prices, open interest positions increased on September $85 and $90 call options on Friday compared with a week before, as crude prices rose to near $80 a barrel before ending the session slightly lower.