* Rising commodity tide lifts oil amid bargain buying
* BarCap raises 2012 forecast for Brent by $10 per barrel
* Small Saudi crude price cuts may stymie extra sales
* Oil pares gains as Moody's cuts Portuguese debt to junk
* Coming up: API oil data at 4:30 p.m. EDT Wednesday (Recasts, updates prices, market activity to Brent settlement, adds inventory expectations)
By Robert Gibbons
NEW YORK, July 5 (Reuters) - Oil prices rose to their highest in two weeks on Tuesday, aided by a broad rush back into battered commodities at the start of the third quarter and forecasts for a tighter market in the months ahead.
Crude prices pared gains late in the session after Moody's Investors Service cut Portugal's credit rating by four levels to Ba2, two notches into junk territory, reinforcing the precarious state of euro zone finances.
Commodities gained broadly in spite of a stronger dollar and weaker stock markets, extending their rebound from a nearly six-month low as investors bet the sell-off in the second quarter -- when the Reuters-Jefferies CRB index <.CRB> dropped 6 percent, the biggest fall since late 2008 -- was overdone.
The CRB rose about 1.5 percent on Tuesday.
"We may be seeing some running to commodities as a safe haven. When in doubt about all the currencies, move into commodities. And the sector was a little oversold coming out of the holiday," said Phil Flynn, analyst at PFGBest Research in Chicago, referring to U.S. Independence Day on Monday.
Oil was also aided by an upgraded price forecast from Barclays Capital, upbeat U.S. factory orders and an unexpectedly mild reduction in Saudi official selling prices that may make it difficult for the world's biggest exporter to boost shipments further.
Brent futures for August
U.S. crude
Light trading volumes after Monday's U.S. holiday helped allow for the price swings. Brent and U.S. volumes both hovered under half million lots traded and both ran below their 30-day averages. U.S. volumes were 30 percent below.
The oversubscribed sale of U.S. crude reserves last week also had oil analysts and investors assessing whether it reflected tighter global oil supplies than recent assessments.
Weekly reports on U.S. oil inventories were expected to show crude stocks fell, while gasoline stockpiles steadied and distillate stocks edged up last week, according to a Reuters survey of analysts on Monday. [ID:nN1E76411F]
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For a 24-hour technical outlook on WTI:
http://graphics.thomsonreuters.com/WT1/20110507084947.jpg
For a 24-hour technical outlook on Brent:
http://graphics.thomsonreuters.com/WT1/20110507085754.jpg
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ECONOMIC HORIZON BRIGHTENING?
New orders received by U.S. factories bounced back in May, although by less than expected, but the report added to data suggesting manufacturing is normalizing after being dampened by supply chain disruptions from the March earthquake in Japan. [ID:nN1E7640H0]
Investors shrugged off a ratings agency comment questioning whether debt held by China's local governments was higher than previously estimated and the ongoing concerns about Europe's economy and the struggle to solve Greece's debt problems.
But oil pulled back from highs after Moody's slashed Portugal's credit rating into junk territory, saying there is great risk the country will need a second round of financing before it can return to capital markets. [ID:nN1E764185]
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. The bank left its Brent forecast for 2011 at $112 but cut its U.S. crude 2011 forecast by $6 to $100.
"The increase in expectations is due to a forecast further reduction in global spare capacity in 2012, together with a significant intensification of the geopolitical background to the oil market," Barclays Capital said in a note.
Violence and unrest in Yemen and Iraq helped keep a supportive geopolitical premium as a factor lifting oil prices, traders and analysts said. [ID:nLDE7640WO] [ID:nL6E7I50B3] (Additional reporting by Gene Ramos in New York, Christopher Johnson in London and Francis Kan in Singapore; Editing by Dale Hudson and John Picinich)