Oil prices rose above $96 a barrel Tuesday amid expectations U.S. crude supplies dropped last week, a sign demand may be improving.

Crude inventories likely fell by 1.3 million barrels last week while gasoline supplies probably dropped 450,000 barrels, according to a survey by Platts, the energy information arm of McGraw–Hill Cos.

The American Petroleum Institute is scheduled to report its weekly supply data later Tuesday while the Energy Department's Energy Information Administration releases its report Wednesday.

In anticipation of those results, benchmark oil for August delivery was up 82 cents to $96.75 a barrel by early afternoon in Europe in electronic trading on the New York Mercantile Exchange. Crude fell $1.31 to settle at $95.93 on Monday.

In London, the September contract for Brent crude rose 74 cents to $116.79 per barrel on the ICE Futures exchange.

Some analysts are concerned Europe's debt crisis and the lack of an agreement so far among lawmakers to raise the U.S. debt ceiling could undermine global financial stability and economic growth.

"The global economy simply faces too many serious headwinds for us to believe that growth rates will accelerate in second half of 2011 and the start of 2012," energy analyst Richard Soultanian of NUS Consulting said. "It will be sluggish at best and, at worst, we could see the start of a double dip recession."

A weaker dollar also contributed to higher oil prices by making crude cheaper for investors holding other currencies.

"A higher risk appetite of investors, reflected in higher equity market prices and the weaker US dollar, is lending support to oil prices," said analysts at Commerzbank in Frankfurt. "In the absence of news on the economic and geopolitical front, investor inflows and outflows are largely driving short–term oil price movements."

The euro rose Tuesday to $1.4171 from $1.4090 late Monday, while the dollar fell to 78.90 Japanese yen from 79.05 yen.

In other Nymex trading in August contracts, heating oil added 1.56 cents to $3.0933 a gallon while gasoline gained 1.41 cents at $3.1115 a gallon. Natural gas futures advanced 2.2 cents at $4.568 per 1,000 cubic feet.

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Alex Kennedy in Singapore contributed to this report.