By Barani Krishnan
NEW YORK (Reuters) - Crude oil prices edged higher on Tuesday, with Brent hovering near $86 a barrel after two straight days of losses, as a weaker dollar helped prop up most commodities.
But worries about a third weekly build in row in U.S. crude supplies capped gains in the oil markets.
Crude stockpiles in the United States were forecast to have risen 3.5 million barrels in the week to Oct. 24, while inventories of distillates and gasoline were seen lower, according to a Reuters survey.
Industry group American Petroleum Institute will issue its inventory report for the week at 2030 GMT. The U.S. government's Energy Information Administration will release on Wednesday its own official data for the same period.
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"People's focus will eventually be on the inventory reports and the market could turn later in the day," said Gene McGillian, senior analyst at Tradition Energy in Stamford, Connecticut. "We can't seem to find a bottom yet."
Brent for December delivery was up 10 cents at $85.93 a barrel by 12:19 a.m. EDT (1619 GMT).
U.S. crude rose 11 cents to $81.11 a barrel, after hitting a more than two-year low of $79.44 on Monday.
The dollar was down about 0.2 percent against a basket of major currencies, after mixed U.S. data that showed disappointing domestic home prices and durable goods orders and the highest level of consumer confidence in seven years.
The dollar also slipped on signs that a two-day meeting of the U.S. Federal Reserve ending on Wednesday will not yet give the greenlight for a rate hike.
Oil prices fell about 1 percent over past two sessions, reacting to a looming contango in U.S. crude futures and Goldman Sachs' cut in its price forecast due to higher projected supplies.
Fears of growing U.S. oil shale supply and OPEC's apparent reluctance to cut its own output have caused prices to fall about 25 percent since the end of June.
While most banks have lower price forecasts next year for Brent and U.S. crude, some analysts think the markets may rebound quicker than projected.,
Barclays on Tuesday revised its Brent forecast for the first quarter of 2015 to $88 a barrel, down from $95, and U.S. crude to $78 from $87.
But its London-based commodities research head, Kevin Norrish, predicted that a steadying forward price spread for Brent and seasonal demand for oil will also help its recovery.
Chinese data on Tuesday, meanwhile, showed that profits in the industrial sector slipped in the first nine months of the year, reinforcing signs of a slowdown in the world's largest oil importer.
But Virendra Chauhan, an analyst at Energy Aspects, told the Reuters Global Oil Forum that China's gasoline demand in September had increased by 500,000 barrels per day from the previous year in spite of the slowing economy.
(Addtional reporting by Sam Wilkin London and Osamu Tsukimori in Tokyo; Editing by Marguerita Choy)
