By Barani Krishnan
NEW YORK (Reuters) - Oil rose 3 percent on Tuesday, the most in three weeks, as a weak dollar lifted commodities denominated in the currency and OPEC raised slightly its forecast for world oil demand growth.
Violence in Yemen also boosted crude prices, raising concerns over the security of Middle East supplies.
The dollar fell on bond market gyrations, making oil and other commodities priced in the greenback more affordable to holders of the euro and other currencies. [FRX/]
The Organization of the Petroleum Exporting Countries tweaked its 2015 world oil demand growth forecast to 1.18 million barrels per day (bpd), above a previous estimate of 1.17 million.
In Yemen, Saudi-led air strikes aimed at Iran-allied Houthis killed 90 people and wounded 300 ahead of a five-day truce to begin later Tuesday. Yemen is a marginal oil producer but its proximity to shipping lanes has raised concerns.
North Sea Brent, a more widely used benchmark for oil, settled up $1.95, or 3 percent, at $66.86. The last time it rose 3 percent in a day was on April 23.
U.S. crude settled up $1.50, or 2.5 percent, at $60.75 a barrel.
Oil had its biggest monthly gain in six years in April, rising up to 25 percent on signs a global glut was easing. The market has been beset with volatility due to fears that higher prices were encouraging more production.
"The market is really torn between wanting to be on the bullish side when you have a weaker dollar and geopolitical situations like today, and staying in accordance with fundamentals, when there's already a deluge of West African crude barrels out there without buyers," said Andrew Lipow, president of Houston-based Lipow Oil Associates.
Industry group American Petroleum Institute said its numbers showed crude inventories down 2 million barrels to 481.9 million in the week to May 8. Analysts polled by Reuters had expected a rise of 400,000 barrels instead. The U.S. Energy Information Administration (EIA) will publish on Wednesday last week's official stockpiles data. [API/S][EIA/S]
On Tuesday, the EIA cut its 2015 forecast for crude output growth to 530,000 bpd from 550,000, and 2016 growth to 20,000, from 80,000 previously.
Saudi Arabia pumped 10.31 million bpd in April, up from 10.29 million in March, and Iraq plans record oil exports from its southern ports in June, sources said.
Goldman Sachs said the recent rally was "premature" and crude prices were "expensive relative to current and forecast fundamentals."
(Additional reporting by Himanshu Ojha in London and Henning Gloystein and Florence Tan in Singapore; Editing by Lisa Von Ahn, Andrew Hay, Ted Botha and Phil Berlowitz)