Oil rose 2 percent on Tuesday in choppy trading after Goldman Sachs raised its price forecasts for Brent crude, saying demand from economic growth will eat into stockpiles and OPEC spare capacity.
Goldman raised its Brent price forecast to $115, $120 and $130 a barrel on a three-, six-, and 12-month horizon and boosted its year-end target for Brent to $120 per barrel from $105 and its 2012 forecast to $140 from $120.
A weaker dollar also supported oil prices, which had declined 2 percent the previous session.
The euro edged up from a two-year low against the dollar on German data that was better than expected, though nagging fears about Europe's debt crisis were expected to check euro gains.
Brent crude for July delivery rose $2.43 to settle at $112.53 a barrel, having swung between $109.50 and $112.65.
U.S. July crude rose $1.89 to settle at $99.59 a barrel, having pushed intraday as high as $100.09 and ending above its 100-day moving average of $98.80.
Crude futures trading volumes remained tepid, with total U.S. volumes 23 percent below and Brent volumes 18 percent under their 30-day averages, according to Reuters data.
Data showing U.S. home sales rose in April was supportive to the market, in addition to the buying encouragement prompted by the Goldman Sachs forecast for higher Brent crude prices, said Joe Posillico, broker at MF Global in New York.
New U.S. single-family home sales rose a second straight month in April, but an overhang of previously owned homes was expected to limit any market recovery.
The view that the U.S. economy is mired in a soft patch was reinforced by a Richmond Federal Reserve survey showing central Atlantic region manufacturing activity stalled in May.
Oil prices showed little immediate reaction to news the United States announced new sanctions on OPEC-member Venezuela's state oil company PDVSA and six other smaller oil and shipping companies for trading with Iran.
The sanctions are narrowly targeted and will not affect PDVSA's sales of oil to the United States or the activities of its subsidiaries including U.S.-based CITGO.
U.S. front-month June gasoline and heating oil futures helped lead the complex up early and posted higher settlements, though gains were pared when trade sources said a gasoline-making unit at Irving Oil's Canadian refinery had restarted.
Also curbing gasoline gains was a report that U.S. retail gasoline demand fell last week against both the previous week and the year-ago period, even as fuel prices began to recede, according to a MasterCard report.
GOLDMAN PRICE TARGET SHIFTS
Goldman Sachs in April predicted a sharp oil price correction that materialized the first week of May, then issued a note in early May saying oil could surpass recent highs by 2012, before issuing raised targets for Brent on Tuesday.
Morgan Stanley on Tuesday also raised its Brent crude price forecast for 2011 and 2012.
Citing improved demand coupled with production lost to Libya's conflict, Morgan Stanley raised its 2011 Brent crude price forecast to $120 per barrel from $100 a barrel, and its 2012 forecast to $130 from $105.
U.S. OIL INVENTORIES
U.S. crude oil inventories fell 860,000 barrels last week, according to the weekly report from the industry group American Petroleum Institute, released late on Tuesday.
Crude stocks increased slightly at the key Cushing, Oklahoma, hub, but gasoline stocks rose 2.4 million barrels and distillate stockpiles fell 846,000 barrels, the API said.
Oil prices pared gains slightly after the report in post-settlement trading.
Ahead of the report, a Reuters poll of analysts yielded a forecast for U.S. crude stocks to have fallen 1.3 million barrels. Distillate stocks were expected to be near flat, up only 100,000 barrels, while gasoline stockpiles were estimated to be up by 300,000 barrels.
The weekly inventory report from the U.S. Energy Information Administration will follow on Wednesday at 10:30 a.m. EDT (1430 GMT).
(Additional reporting by Gene Ramos in New York and Simon Falush and Christopher Johnson in London; Editing by Marguerita Choy)