Oil Extends Gains Above $78, Eyes U.S. Crude Stocks

SINGAPORE (Reuters) - Oil edged further above $78 a barrel on Tuesday, after rising more than 1.5 percent a day ago, as traders weighed the impact of a possible rise in U.S. crude stocks against positive manufacturing and home sales data.

The continued strength of commodities-linked currencies such as the Australian dollar also offered support to oil, with the weak U.S. dollar also sending gold to its highest in almost two weeks.

U.S. crude for December rose 22 cents to $78.35 a barrel by 0318 GMT, after settling up $1.13 on Monday. London Brent crude gained 21 cents to $76.76 a barrel.

U.S. crude futures rose to the highest this year at $81.78 a barrel on October 23, after turning positive on a rolling 12-month basis in the middle of last month for the first time since October 2008, raising the risk of commodity-led inflation.

"Oil has stabilized around the $80 level, with the feeling in the market that when oil hits above $80, the focus shifts toward the high levels of fuel inventories," said Victor Shum, a consultant with Purvin & Gertz in Singapore.

"So in the near term, it is still considered very difficult to push through and substain above $80."

A Reuters poll of analysts forecast weekly U.S. inventory data for the week to October 30 would show a 1.5 million-barrel build in crude stockpiles, a 500,000-barrel draw in distillates and a 300,000-barrel rise in gasoline inventories.

Industry group American Petroleum Institute will issue its weekly report on U.S. inventories later on Tuesday, while the U.S. government Energy Information Administration will issue its data on Wednesday.

Oil got a boost on Monday after U.S. manufacturing activity hit its highest level in 3- years last month and pending home sales contracts unexpectedly jumped in September, easing fears the budding economic recovery of the world's largest oil consumer would falter.

A separate report from the U.S. Commerce Department showed spending on construction projects rose in September.