Oil prices rose on Tuesday as apparent progress in resolving the U.S. budget crisis eased concerns that the world’s top economy could slip into recession.
As the White House and Republicans appeared to edge closer to a resolution to avert the “fiscal cliff” that would increase income taxes for most Americans beginning January 1, investors poured cash into riskier asset classes such as oil and equities, with U.S. stocks showing the biggest two-day gain in a month.
A resolution to the crisis looked closer after House of Representatives Speaker John Boehner kept the support of his Republican colleagues for compromises in talks with President Barack Obama.
“Everything is keying on the ‘cliff’ hopes, because people are assessing if we’re closer to a deal,” said Mark Waggoner, president at Excel Futures Inc.
The budget debate and the ongoing euro zone crisis have weighed on oil markets for months, raising worries that sluggish fuel demand in developed economies could fall even further. Investors have balanced consumption concerns against potential supply disruptions because of rising unrest in the Middle East.
Gasoline and heating oil futures led the oil complex higher on Tuesday on word Motiva Enterprises would again halt some production on the 325,000-barrel-per-day (bpd) crude distillation unit at its Port Arthur, Texas, refinery for more repairs. The unit was shut down shortly after being launched this year due to problems with pipes.
Front-month Brent crude oil prices rose $1.20 to settle at $108.84 a barrel, briefly topping the 14-day moving average of $108.87 a barrel.
January U.S. crude oil futures gained 73 cents to settle at $87.93 a barrel, breaking above the 50-day moving average of $87.64 a barrel after testing that level during Monday’s trade.
Trading volumes were light, with Brent volumes down nearly 33 percent from the 30-day moving average, and U.S. crude volumes 24 percent off that average.
As Brent crude prices headed toward the end of the year close to levels where they started 2012, Ali al-Naimi, oil minister of OPEC kingpin Saudi Arabia, said the market was well balanced with prices above $100 a barrel. The world’s largest exporter has tried to achieve that price level by adjusting production over the last two years.
Average Brent crude prices have been relatively stable over the past two years, though they have at times spiked toward $120 and above as supplies from the Middle East have been disrupted by the Arab Spring and as Western sanctions cut Iranian oil exports.