Oil rose 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 $1.01 to $111.11 a barrel by 12:33 p.m. EDT (1633 GMT), swinging between 109.50 and $112.65.
The U.S. July crude rose 77 cents to $98.47 a barrel, having pushed as high as $100.09 and back above its 100-day moving average of $98.80.
Crude futures pared gains after front-month July hit a new session high of $100.09, which prompted some profit-taking, said Daniel Flynn, analyst at PFGBest Research in Chicago.
U.S. front-month June gasoline and heating oil futures led the complex in percentage gains early on Tuesday. Gasoline had settled higher the previous session, bucking oil's downward trend.
But fuel futures pared gains after trade sources said Irving Oil restarted the larger of the two gasoline-making units at its Canadian refinery. News on Monday that the unit shut supported gasoline futures.
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 for a second straight month in April and supply was the lowest in a year, but an overhang of previously owned homes was expected to stifle any housing 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, after expanding the previous seven months.
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.
GOLDMAN PRICE TARGET SHIFTS
Goldman Sachs in April predicted the oil price correction that materialized this month. Now, the bank says oil could surpass its recent highs by 2012.
Morgan Stanley on Tuesday also raised its Brent crude price forecast for 2011 and 2012.
Citing improved demand coupled with lost production from 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
Forecasts of another slide in U.S. crude oil inventories provided support. U.S. crude stocks were seen down 1.6 million barrels last week, while distillates and gasoline inventories were both estimated to be up by 500,000 barrels, a Reuters poll of analysts on Monday showed.
Weekly oil inventory reports on U.S. stockpiles will be in focus, starting with the industry group American Petroleum Institute's data due at 4:30 p.m. EDT (2030 GMT) on Tuesday.
(Additional reporting by Gene Ramos in New York and Simon Falush and Christopher Johnson in London; Editing by David Gregorio)