Oil rose for the fourth straight session on Tuesday, edging higher above $73 a barrel after OPEC raised its 2010 demand forecast and the dollar slumped.
But prices were capped before a challenge of the year-high of $75 a barrel after economic bellwether Johnson & Johnson reported disappointing quarterly sales figures, raising concerns about the strength of consumer spending and the pace of economic recovery.
U.S. crude for November delivery rose 25 cents to $73.52 by 1426 GMT (10:26 a.m. EDT), having earlier hit a 7-week high of $74.47 a barrel.
London Brent crude gained 40 cents to $71.76.
In the latest sign an economic recovery will boost oil consumption, the Organization of the Petroleum Exporting Countries said world crude demand would recover by 700,000 barrels per day next year to 84.93 million bpd.
The group, which pumps one in every three barrels of world crude supply, had previously projected global oil demand would recover by just 500,000 bpd next year.
The world economy now appears to be entering into a new phase, moving from a period of containing the crisis to one of economic recovery, OPEC said in its monthly market report.
Average crude demand has fallen by about 2 million bpd since it rose above 86 million in 2007, due to a combination of a spike in prices in mid-2008 to almost $150 a barrel and the economic crisis.
OPEC has identified $75.00 as the level needed to sustain investment in future oil production, but concerns have been raised it is too high a price for a still fragile world economy.
Oil prices were further supported by a slump in the U.S. dollar, which fell to a near 14-month low against the euro. Dollar-priced commodities tend to rise when the greenback falls as they become cheaper for holders of other currencies.
Gold has been pushed to a series of record highs by the dollar's recent fall. The precious metal hit a fresh all-time high of $1,068.30 on Tuesday.
We're revising our forecast range for oil up to $70 to $80 for the remainder of the year, from $65 to $75, said Sumisho Sano, General Manager of Research at SCM Securities in Tokyo.
Sentiment is moderately positive, and while fundamentals do not necessarily justify higher prices, the trend of a weaker dollar has been a big boost. Cold temperatures in the U.S. have also been very price supportive.
The National Weather Service said total U.S. heating demand will be higher than normal this week as the first seasonal wave of cold weather hits the Northeast and Midwest.
Asian equities hit 14-month highs on Tuesday ahead of results from such bellwethers as Goldman Sachs
With earnings due from a number of major U.S. firms this week, the market is likely to take some cues from Wall Street, as they try to gauge the strength of the nascent recovery.
U.S. weekly oil inventory data from the American Petroleum Institute (API) will be delayed until Wednesday due to Monday's Columbus Day holiday, while the Energy Information Administration (EIA) report will be released on Thursday.
A Reuters poll of analysts forecast the data will show a 700,000-barrel build in crude stocks last week, after a surprise drawdown last week. Distillate stocks were seen falling by 100,000 barrels while gasoline inventories were forecast to have risen by 700,000 barrels.
(Additional reporting by Jennifer Tan in Singapore; editing by Keiron Henderson)