The New York-based bank raised its year-end forecast from $65 a barrel and withdrew its prediction that prices will dip prior to a rally. Crude declined yesterday after a U.S. government report showed fuel demand fell the most since January last week as rising prices and the recession hurt consumers.

“As the financial crisis eases, an energy shortage lies ahead,” Goldman analysts Jeffrey Currie in London and David Greely in New York wrote in a research report e-mailed today. The bank set a 12-month price target of $90 a barrel, up from $70, and introduced a forecast of $95 for the end of 2010.

Crude oil for July delivery gained as much as $1.36, or 2.1 percent, to $67.48 a barrel in electronic trading on the New York Mercantile Exchange. It traded at $67.43 as of 1:35 p.m. London time. Oil reached a seven-month high of $69.05 on June 2.

Oil will probably rise to a year-end range of $70-$75 a barrel, the Organization of Petroleum Exporting Countries Secretary General Abdalla el-Badri said today in London. Crude’s rally is being driven by a weaker dollar and optimism for an economic recovery, he said.

“A slight weakening in the dollar, coupled with an upbeat forecast provided by Goldman Sachs is helping recoup some of yesterday’s losses,” Edward Meir, an analyst at MF Global Ltd. in Connecticut, said in an e-mailed report today.

Yesterday’s report from the Energy Department showed fuel demand in the U.S., the world’s largest energy user, fell by 900,000 barrels to 17.7 million barrels a day last week, the biggest drop since Jan. 9. Gasoline consumption slipped 518,000 barrels to 9.02 million, the biggest decline since January 2005.

Crude Inventories

Crude inventories climbed 2.9 million barrels to 366 million in the week ended May 29, according to the Energy Department. The gain occurred as imports jumped 9.9 percent and refineries increased operating rates to the highest in six months. Fuel demand fell to the lowest since May 1999.

The Energy Department report was forecast to show that crude-oil stockpiles lost 1.5 million barrels, according to the median of 15 estimates from analysts surveyed by Bloomberg News.

Refineries operated at 86.3 percent of capacity, up 1.2 percentage points from the previous week and the highest since the week ended Dec. 5, the report showed.

“There’s a lot of optimism priced in. But demand is in a very fragile position, and I expect there will be considerable correction,” said Eugen Weinberg, an analyst with Commerzbank AG in Frankfurt. “Partly today’s gains are due to the higher prediction from Goldman Sachs.”

Brent Tops WTI

Brent crude for July delivery was at $67.60 a barrel, up $1.72, on London’s ICE Futures Europe exchange at 1:35 p.m. local time. It dropped $2.29, or 3.4 percent, to end yesterday’s session at $65.88, the biggest decline since April 20.

Brent is trading above West Texas Intermediate crude for the first time in nearly a month after rising U.S. inventory suppressed the strength in New York crude relative to London prices. Nigerian supply concerns and North Sea field maintenance are also giving additional support to the European benchmark, according to Pete Luxton, an energy analyst at Informa Global Markets in London.

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net