* Oil prices boosted by signs of fiscal cliff deal
* Brent hits record annual average of $111.68 a barrel
* Brent prices post 4th straight full-year gain
* U.S. crude ends year down 7.1 percent (Updates with settlements)
NEW YORK, Dec 31 (Reuters) - Brent crude rose on Monday, closing 2012 up for the fourth straight year after geopolitical threats to production offset worries about flagging oil demand.
As oil prices edged higher on optimism about a positive outcome to the U.S. budget negotiations, Brent closed the year averaging over $111 a barrel, the highest annual average on record. The international benchmark gained 3.5 percent for the year, after rising 13.3 percent in 2011.
Prices found support throughout the year from unrest in the Middle East that threatened supplies, including Western efforts to halt Iran's nuclear ambitions through sanctions against the OPEC nation.
But the euro zone crisis and the U.S. fiscal cliff standoff have added to ongoing concerns about fuel demand and helped balance out production worries throughout 2012. Market players expect these factors will continue to influence prices next year.
"Oil is going to be attached to the Middle East issues, I don't think Iran is going away, they have been quiet of late," said Richard Ilczyszyn, chief market strategist and founder of iitrader.com LLC in Chicago.
"We're finding a base in that $76 to $80 a barrel area (for U.S. crude). I don't know if we're going to go much lower than that for a while, even with all the potential oil coming on line in the United States, I think it's going to be geopolitical risk."
While Brent headed toward annual gains, U.S. crude was on tap to end the year more than 7 percent lower from its 2011 finish, after three straight yearly gains, pressured by surging production in the United States -- which hit a 19-year high this year -- and Canada.
Oil prices and U.S. stocks pushed higher on Monday afternoon after comments from President Barack Obama and Senate Republican leader Mitch McConnell indicated a deal was close to avert the U.S. "fiscal cliff", which has threatened to send the economy into recession.
Brent February crude traded up 49 cents on the day to settle at $111.11 a barrel, averaging $111.68 for 2012, eclipsing the previous record daily average of $110.91 in 2011.
U.S. February crude rose $1.02 to trade at $91.82 a barrel, off intraday highs of $91.99, just above the 200-day moving average of $91.98 a barrel.
Trading volume remained thinned by the year-end holiday season, with Brent activity 44 percent under the 30-day average and U.S. turnover 48 percent below the 30-day average.
Commodities also found some support from economic data in China, the world's second-largest economy and No. 2 crude oil consumer, where factory activity in December expanded at its fastest rate since May 2011, reinforcing hopes for revived growth.
The record high average oil price for 2012 was a windfall for many producers, with OPEC's oil export revenues hitting a peak of $1.05 trillion, up 2.5 per cent from last year, U.S. government data showed.
Top oil exporter Saudi Arabia expects production increases by other oil producers to weigh on energy prices in 2013, however, potentially cutting into its fiscal surplus.
Saudi Finance Minister Ibrahim Alassaf said on Saturday the kingdom ran a budget surplus of 387 billion riyals ($103.2 billion) in 2012 as high energy prices and strong output levels generated revenue of 1.24 trillion riyals.
"The results of this year are exceptional," Alassaf told Al-Arabiya television, but added, "The international conditions and the increase in production by some states (in 2013) will have negative effects on prices." (Reporting by Robert Gibbons and Matthew Robinson in New York, Christopher Johnson in London and Florence Tan in Singapore; Editing by Nick Zieminski and David Gregorio)