Oil rose nearly 2 percent on Tuesday 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 lifted 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 keep euro gains in check.

The dollar index <.DXY>, measuring the greenback against a basket of currencies, weakened.

Brent crude for July delivery rose $2.15 to $112.25 a barrel by 11:58 a.m. EDT (1558 GMT), rallying from its early low of $109.5023.

The U.S. July crude rose $1.77 to $99.47 a barrel, having pushed as high as $100.09 and moved back above its 100-day moving average.

U.S. front-month June gasoline and heating oil futures continued to lead the complex in percentage gains early on Tuesday. The previous session, gasoline had settled higher, bucking oil's downward trend.

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.

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 engaging in trade with Iran in violation of a U.S. ban.

(Additional reporting by Gene Ramos in New York and Simon Falush and Christopher Johnson in London; Editing by David Gregorio)