UPDATE 11-Oil rises on 'fiscal cliff' optimism, refinery issues

Tue Dec 18, 2012 5:23pm EST

Related Topics

* Equities, oil rise as hopes grow for a 'fiscal cliff' deal

* Product futures lead oil complex higher on Motiva problems

* Coming up: EIA oil inventory data 10:30 a.m. EST Wednesday (Adds crude trading volume, API data, paragraphs 9, 15-19)

By Matthew Robinson

NEW YORK, Dec 18 (Reuters) - 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 Jan. 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.

RBOB gasoline and heating oil futures rose by 1.5 and 1.3 percent, respectively, during late afternoon trade.

"Problems with the crude unit at the Motiva refinery in Texas have helped lift gasoline and heating oil futures," said John Kilduff, partner at Again Capital LLC in New York.

Motiva's decision to reduce production to conduct maintenance on a "minor leak" comes one day after a small fire broke out on the troubled unit, called VPS-5, which has spent more time being repaired than in production since it started up for the first time in late April.

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.

U.S. OIL INVENTORIES

Crude futures prices had little reaction in post-settlement trading to the American Petroleum Institute's (API) weekly report showing crude stocks fell 4.1 million barrels last week in the United States, much more than expected.

Gasoline stockpiles jumped 4.2 million barrels, while distillate stockpiles fell 1.9 million barrels, the API said.

Ahead of the API data, crude oil stocks were expected to be down 1.1 million barrels, a Reuters survey of analysts showed.

Gasoline stocks were expected to be up 1.8 million, while distillate stocks were seen up 1.0 million barrels.

The U.S. Energy Information Administration's weekly report will follow on Wednesday at 10:30 a.m. EST (1530 GMT).

(Reporting by Matthew Robinson and Robert Gibbons; Shadia Nasralla and David Sheppard in London; Manash Goswami and Ramya Venugopal in Singapore; Editing by Jim Marshall, Gunna Dickson, David Gregorio, Phil Berlowitz and Bob Burgdorfer)

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