(Reuters) - Brent crude climbed for the third day to above $114 on Thursday, boosted by a higher-than-expected drop in U.S. crude stocks and growing investor appetite following bullish oil forecasts from major banks.
U.S. crude oil stocks fell by a more-than-expected 3.2 million barrels, according to the American Petroleum Institute ahead of a second stocks report on Thursday, tightening inventories in the top global oil consumer.
Top investment banks Goldman Sachs (GS.N), Morgan Stanley (MS.N) and Barclays Capital have all published upbeat forecasts on the outlook for oil fundamentals this week, with some warning of shrinking spare capacity.
ICE Brent crude rose 88 cents to $114.50 a barrel by 1000 GMT. U.S. crude also climbed but lagged Brent and was up 68 cents at $97.33 a barrel by the same time.
"In our view, it is only a matter of time before inventories and OPEC spare capacity become effectively exhausted, requiring higher oil prices to restrain demand, keeping it in line with available supply," said Goldman Sachs analysts in a note released on Thursday.
On Tuesday, Barclays Capital raised its 2012 forecast for Brent by $10 to $115 per barrel, and upgraded its 2012 forecast for U.S. crude by $4 to $110.
"I think there's generally positive market sentiment and better risk appetite. There's also a sense that the rate hike in China may be the last," said Carsten Fritsch, an analyst at Commerzbank said.
China raised interest rates for the third time this year on Wednesday in a move that many investors saw as marking the end of its monetary tightening campaign, buoying the outlook for commodity demand.
Technicals are also helping to support the front-month Brent crude contract after it rose above the 50-day moving average in Thursday's session, analysts said.
In the short term, Brent crude should consolidate between $112.40-$114.48 for one more trading session before rising toward $120, while U.S. crude could hit $99.68, according to Reuters technical analyst Wang Tao.
EUROPEAN OUTLOOK
The stronger prices came despite an expected increase in European Central Bank (ECB) interest rates later on Thursday in a move to show no let-up in its insistence that governments solve Greece's debt crisis without triggering a default credit rating.
While analysts said higher rates could hurt future regional oil demand, they said the hike had already been factored into current price levels and that this would not dent future demand growth set to come mostly from Asia.
"I think the ECB is a done deal and there won't be any losses on oil. What will be more important is what (European Central Bank President Jean-Claude) Trichet says afterwards," said Fritsch.
The European debt crisis is set to remain on investors' radars after ratings agency Moody's slashed Portugal's credit rating to "junk" status and cast doubts on efforts to rescue distressed euro zone states without debt restructuring.
The market will also be watching key U.S. jobs data on Friday for evidence of growth steadying in the world's largest oil consumer. U.S. nonfarm payrolls likely rose modestly in June after suffering a setback the prior month.
Growth in the U.S. economy's vast services sector remained sluggish in June as new orders fell, but economists said a steady employment reading pointed to job growth later in the year.
Concerns over a potential U.S. government debt default also raised fears of weaker demand. Inability to meet payment commitments could lead to higher borrowing costs and tip the economy back into recession. U.S. Treasury officials are discussing options to stave off a default, sources said.
Traders will also be looking to an inventory report from the U.S. Energy Information Administration's set to be published on Thursday at 1500 GMT.
