Brent crude rose above $112 per barrel to hit a one-month high today as the US Congress approved a deal to avert a fiscal crisis, while promising data from top energy consumer China also supported prices.
The US averted economic calamity when lawmakers approved a deal preventing huge tax hikes and spending cuts that would have pushed the world's largest economy off the "fiscal cliff" into recession.
It also boosted investors' appetite for riskier assets and depressed the US dollar against major currencies. A weaker greenback makes dollar-denominated oil more affordable for holders of other currencies.
Brent crude for February delivery rose 92 cents to $112.03 a barrel earlier after touching $112.11, the loftiest intra-day price since early December. Brent ended 2012 averaging over $111 a barrel, the highest annual average on record, after geopolitical threats to production offset worries about flagging oil demand.
US crude was up 98 cents to $92.80 a barrel, after rising earlier to $92.85, the highest since October.
"It's a short-term positive," Sijin Cheng, a commodities analyst at Barclays Capital said. "It's certainly been on investors' minds for a long time and any good news is quite a relief." The US will be tackling its debts next, and president Barack Obama has vowed to avoid a repeat of last year's divisive fight with Congress.
Oil also gained support from robust Chinese data pointing to a recovery at the world's second largest economy and second biggest oil consumer.
"That is adding to the demand picture of oil," said Michael McCarthy, a markets strategist at CMC Global Markets in Sydney.
China's official manufacturing purchasing managers' index held steady in December at 50.6, adding to evidence that its economy was picking up in the last three months of 2012 after slowing for seven straight quarters. "It's further indication that China is recovering but we're not seeing a sharp rebound like the one we've seen a few years ago," Barclays' Mr Cheng said.
The brighter outlook has prompted speculators to raise their net long positions in Brent crude oil futures and options for a second week running, IntercontinentalExchange data showed on Monday.
Technical charts showed Brent may rise further to $112.41 a barrel after breaking through a resistance at $111.31, Reuters market analyst Wang Tao said. Analysts expect tensions in the Middle East to keep oil prices elevated in 2013.
"The western sanctions on Iran due to the country's nuclear programme and the unrest in Syria remain the wild cards for oil prices in 2013," analysts at Global Risk Management wrote in their 2013 outlook.
Iran is carrying out naval drills in the Strait of Hormuz, aimed at showcasing its military capability in the shipping route through which 40 percent of the world's sea-borne oil exports pass.
Iran has threatened to block the strait if it comes under military attack over its disputed nuclear programme. The US has said it would not tolerate any obstruction of commercial traffic through the strait. Fighting continued in Syria as government war planes bombed opposition-held areas on New Year's Day.
Reuters
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