Oil rose about $1 per barrel Tuesday after the dollar weakened and major investment banks predicted that crude prices will rise later this year.
Benchmark West Texas Intermediate for July delivery added 96 cents at $98.64 per barrel Tuesday morning on the New York Mercantile Exchange. In London, Brent crude rose $1.41 to $111.52 on the ICE Futures exchange.
Prices climbed early in the day as the dollar fell against other currencies. Oil, which is priced in dollars, tends to increase when the dollar falls and makes crude cheaper for investors holding foreign money.
Oil also got a boost from reports by Goldman Sachs, J.P. Morgan and Morgan Stanley that said prices will almost certainly be higher later this year. The investment banks said the recent 15 percent drop in benchmark crude was only a brief pause in what will likely be a long-term rise to near-record levels.
Goldman Sachs expects benchmark oil to hit $135 per barrel by the end of 2012. Morgan Stanley predicts Brent crude will average $120 per barrel in 2011 and J.P. Morgan said Brent should hit $130 per barrel in the third quarter.
Even though U.S. drivers cut back on gasoline purchases this year as pump prices rose, the rest of the world is expected to keep consuming more. And OPEC countries will have an increasingly tougher time meeting demand for oil, the investment banks said.
"It is only a matter of time until inventories and OPEC spare capacity will become effectively exhausted," Goldman Sachs analyst David Greely said in a research note.
Analyst and trader Stephen Schork said it's possible that oil prices could rebound to those levels later this year, but it will put extreme pressure on the economy. If oil rises to the levels forecast by the investment banks, it would push gasoline prices well beyond $4 per gallon — squeezing travel budgets and likely forcing many people to drive less.
"You have to look back at what that means for the consumer," Schork said. "We can get back to those levels, yeah. But I think it occurs at great detriment to the global economic recovery."
The recent drop in oil has taken some pressure off the economy. It helped cut gasoline pump prices this month after they nearly hit a national average of $4 per gallon. Gasoline prices on Tuesday fell for the 12th straight day to a national average of $3.828 per gallon, according to AAA, Wright Express and Oil Price Information Service. A gallon of regular is now 3.2 cents cheaper than it was a month ago but still $1.035 higher than the same time last year.
In other Nymex trading, heating oil added 6 cents at $2.9170 per gallon and gasoline futures gained 6 cents at $2.9639 per gallon. Natural gas lost a penny at $4.380 per 1,000 cubic feet.
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