Dollar surge pushes oil lower, European data provides some support

LONDON (Reuters) - Oil prices fell on Tuesday, hit by a stronger dollar, although improving European economic data and optimism that Greece will strike a deal with its creditors prevented further weakness.

A global surplus of oil continues to put downward pressure on crude prices but expectations that American Petroleum Institute data later in the day will show a weekly drawdown in oil stocks, also helped curb losses on Tuesday.

In volatile trade, Brent crude was 39 cents lower at $62.95 a barrel by 1323 GMT, after rising 32 cents in the previous session.

U.S. crude for August delivery fell 54 cents to $59.84 a barrel. The July contract, which expired on Monday, closed up 7 cents at $59.68 a barrel.

Oil fell after U.S. Federal Reserve Governor Jerome Powell said there could be two interest rate hikes this year, which pushed the dollar higher.

The dollar index was up 1.3 percent, while the euro shed nearly 2 percent against the greenback. Oil, denominated in the U.S. currency, becomes less affordable to holders of other currencies when the dollar strengthens.

Greece took a step back from the abyss with the presentation of new budget proposals that euro zone leaders welcomed as a basis for a possible agreement in the coming days to unlock frozen aid and avert a looming default.

Strong European economic data supported prices as France's manufacturing sector expanded in June for the first time since April 2014 and Germany's private sector grew at a faster rate in June than in the previous month.

"The data from France and Germany show there are flickers of life in the European economy, but strong supply is likely for some time to come, meaning subdued oil prices," said Michael Hewson, chief market analyst at CMC Markets.

The global surplus of oil has led to millions of barrels being left afloat at sea as sellers struggle to find buyers for cargoes.

Analysts, however, expect U.S. commercial crude oil stocks to have dropped by an average of 1.8 million barrels to around 466 million barrels last week.

The American Petroleum Institute, an industry group, will release its data on U.S. stocks on Tuesday at 4.30 p.m. EDT, while the U.S. government's Energy Information Administration will publish its own inventory data on Wednesday at 10.30 a.m EDT.

Investors are also watching to see the speed with which Iran could increase oil exports if there is a deal between Tehran and six world powers over Iran's nuclear programme, which would probably lead to the lifting of Western sanctions.

Iranian Foreign Minister Mohammad Javad Zarif said he saw a good chance of reaching a final agreement by a June 30 deadline or a few days later, provided there was political will.

(Additional reporting by Keith Wallis in Singapore; Editing by William Hardy and Susan Fenton)

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