June 25 (Reuters) - Brent crude fell on Tuesday while investors awaited U.S. inflation data later this week, but prices held above the $85 level after the previous session's gains on escalating geopolitical tensions and hopes of improved demand this summer.
Brent futures for August settlement were down 43 cents at $85.58 a barrel by 1100 GMT. U.S. crude futures also dipped by 43 cents to $81.20.
Both benchmarks gained about 3% last week, marking two straight weeks of gains.
"Front-month Brent prices could push into the upper $80s in the short term, driven by the confluence of increasing geopolitical risk and bullish fundamentals, steepening the market's backwardation," said Rystad Energy analyst Claudio Galimberti.
Backwardation is when front-month prices are higher than the second month , making oil likelier to be used now rather than be left in storage for the future.
Oil and fuel stockpiles have declined and gasoline demand is rising as the United States, the world's biggest oil consumer, enters its peak summer consumption period.
U.S. crude oil stockpiles are expected to have fallen by 3 million barrels in the week to June 21, a preliminary Reuters poll showed on Monday. Gasoline stocks were also expected to have declined while distillate inventories are likely to have risen.
"The surge in oil prices was triggered by an optimistic demand outlook and reduced U.S. inventories. With the Northern Hemisphere entering a hot summer and the upcoming hurricane season, demand is expected to continue increasing in the coming months," said independent market analyst Tina Teng.
Also on the radar is Friday's release of the personal consumption expenditures index, the U.S. Federal Reserve's preferred inflation measure, which will give investors a steer on how long the central bank might wait before reducing interest rates.
Fed Governor Michelle Bowman reiterated that holding the policy rate steady "for some time" is likely to be enough to bring inflation under control.
Delays to a U.S. rate cut could hold back the economy and limit growth in fuel consumption.
Oil was also supported by continued Ukrainian attacks on Russian oil infrastructure. On June 21, Ukrainian drones hit four refineries, including the Ilsky refinery, one of the main fuel producers in southern Russia.
Reporting by Deep Vakil in Bengaluru Additional reporting by Emily Chow in Singapore Editing by David Goodman
