Oil prices seesawed near unchanged levels on Monday as stronger-than-expected U.S. home sales data lifted prices even as energy companies restarted production after Tropical Storm Bonnie fizzled.

U.S. crude for September delivery slipped 12 cents to $78.86 a barrel by 12:49 p.m. EDT, having seesawed between $78.06 and $79.33.

U.S. crude prices reached an 11-week high at $79.60 a barrel on Friday before ending just below $79 and still ended up 3.91 percent for the week. Thursday's $79.30 settlement was the highest close since prices ended at $79.97 on May 5.

In London on Monday, ICE Brent crude was down 6 cents at $77.39.

Oil prices turned positive when government data showed sales of new U.S. single-family homes rebounded strongly in June from May's record low, driving the number of houses on the market to the lowest level in nearly 42 years.

A brighter outlook from economic bellweather FedEx Corp (FDX.N) and the new home sales data sent U.S. stocks higher, building on the biggest three-week gain for the S&P 500 Index .SPX in a year. .N

Oil's price strength remained curbed as energy companies restarted production that had been shut in last week ahead of Tropical Storm Bonnie. Bonnie dissipated over the Gulf of Mexico on Saturday, the storm having done little damage.

Bonnie had caused the suspension of more than half of crude oil production in U.S.-regulated areas of the Gulf and about 25 percent of gas output.

Crude has been on both sides of unchanged today because the storm didn't do any real damage so that provides some pressure, but the market is optimistic about the homes sales data, the stock market and that the banks' stress test is over, said Phil Flynn, analyst at PFGBest Research in Chicago.

This week's inventory reports will give traders a snapshot of where U.S. oil inventories stood on Friday, after last week's reports showed a surprise crude stocks rise and big jumps in refined products stored.

A Reuters poll of 31 analysts, banks and government agencies on Monday yielded an expectation U.S. crude oil prices will average $79.44 in 2010, down from $79.86 in the June survey.

While not prominent in trader chatter on Monday, several ongoing geopolitical disputes lurked in the background.

Venezuelan President Hugo Chavez threatened on Sunday to cut oil supplies to the United States in case of a military attack from Colombia as a dispute escalated over charges his country harbors Colombian rebels.

Venezuela is one of the top exporters to the United States.

The dispute over Iran's nuclear program also simmered. The European Union imposed tighter sanctions on Iran on Monday, approving measures to block oil and gas investment and curtail Tehran's refining and natural gas capability.

But Iran is ready to return to talks on a nuclear fuel swap without conditions, its envoy to the International Atomic Energy Agency was quoted as saying by the official IRNA news agency.

(Additional reporting by David Turner in London and Fayen Wong in Perth; Editing by David Gregorio)

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