US crude settles up 2.5% at $60.75 per barrel

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U.S. oil prices closed up 2.5 percent at $60.75 a barrel on Tuesday as a weak dollar lifted commodities denominated in the currency and OPEC slightly raised its forecast for world oil demand growth.

Violence in Yemen also boosted oil prices, raising concerns over the security of Middle East crude 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.

Read MoreGlobal oil demand expectations rise: OPEC

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.

Saudi-led air strikes aimed at Iran-allied Houthis hit on a rocket base in the Yemen capital Sanaa, killing 90 people and wounding 300 ahead of a five-day truce set to begin later Tuesday. While Yemen is a marginal oil producer, its proximity to shipping lanes has raised concerns over supply routes.

Gartman: Einhorn wrong on oil
Gartman: Einhorn wrong on oil

June Brent crude was up $1.71 at $67.33 a barrel by 2:36 p.m. EDT.

Oil had its strongest monthly advance in six years in April, rising up to 25 percent on signs a global glut was easing. The market has been beset with volatility since by fears that higher prices were encouraging more production.

Read MoreHere's why Iran and Iraq should worry OPEC

"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 will issue at 4:30 p.m. EDT (2030 GMT) its expectations for U.S. oil stockpiles last week. A Reuters poll estimated a crude stock drawdown of 100,000 barrels on average in the week to May 8. The U.S. Energy Information Administration will publish last week's official inventory data on Wednesday.

The EIA lowered its estimate for crude oil demand growth in 2016 to 70,000 bpd from 90,000 previously. It also revised down its 2015 and 2016 crude oil production growth forecasts amid lower prices and fewer active drilling rigs

Read MoreGartman: Forget OPEC, here's why I'm getting long oil

Saudi Arabia pumped 10.308 million bpd in April, up from 10.29 million in March, while Iraq plans record oil exports from its southern ports in June, sources said.

Goldman Sachs said the recent oil rally was "premature" and crude prices were "expensive relative to current and forecast fundamentals."