By Arunima Kumar and Deep Kaushik Vakil

(Reuters) -Crude oil prices edged lower on Tuesday, pressured by a stronger dollar, while investors shifted focus to U.S. inflation data due this week.

Losses were limited, however, by escalating geopolitical tensions and hopes of improved demand this summer.

futures for August settlement were down 50 cents, or 0.6%, at $85.51 a barrel by 1222 GMT. futures also dipped by 54 cents, or 0.7%, to $81.09.

Both benchmarks gained about 3% last week, marking two straight weeks of gains.

The dollar was up 0.13% on Tuesday, highlighting currency strength that makes dollar-priced oil more expensive for buyers holding other currencies.

The U.S. Federal Reserve, meanwhile, has 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.

“Positive news around U.S. inventories and gasoline demand last week have increased positive sentiment, bolstered with forecasts of a global supply shortfall in third quarter,” said Panmure Gordon analyst Ashley Kelty.

“However, concerns over the glacial pace of central bank rate cuts remain a headwind to the global economic recovery.”

An expected decline in oil and fuel stockpiles and stronger gasoline demand as the United States, the world’s biggest oil consumer, enters its peak summer consumption period kept a lid on price losses.

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. [EIA/S]

“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. Fed’s preferred inflation measure, which will give investors a steer on how long the central bank might wait before reducing interest rates.

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.