Brent rises above $111 as US fiscal deal draws near

Tue Jan 1, 2013 10:05pm EST

Related Topics

* "Fiscal cliff" crisis may be close to end

* China manufacturing data points to economic recovery

* Coming up: U.S. Dec ISM Manufacturing PMI; 1500 GMT

By Florence Tan

SINGAPORE, Jan 2 (Reuters) - Brent crude extended gains on Wednesday, staying above $111 a barrel as the U.S. Congress moved closer to a deal to avert a fiscal crisis, while promising data from top energy consumer China also supported prices.

The U.S. House of Representatives looked set to end the "fiscal cliff" crisis in a vote later in the day on a bipartisan deal meant to prevent Washington from pushing the world's biggest economy into recession.

The last-minute deal will allow the United States to stave off higher taxes and sharp spending cuts that could push its economy into recession and erode fuel demand at the world's largest oil consumer.

Brent crude for February delivery rose 49 cents to $111.60 a barrel by 0256 GMT. Brent closed 2012 averaging over $111 a barrel, the highest annual average on record, after geopolitical threats to production offset worries about flagging oil demand.

U.S. crude was up 50 cents to $92.32 a barrel after settling on Monday at the highest since October.

"Given the rallies that we've seen in commodities and equities in the past few weeks, the market has come to the conclusion that a deal will be done," Michael McCarthy, a markets strategist at CMC Global Markets in Sydney said. The Republicans "can't afford to block this bill", he said.

Oil also gained support from robust Chinese data pointing to a recovery at the world's second largest economy and second biggest oil consumer, McCarthy said.

"That is adding to the demand picture of oil," he said.

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.

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.

MIDEAST TENSIONS

Analysts expect tensions in the Middle East to keep oil prices elevated in 2013.

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 United States 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.

On Friday, the leaders of Sudan and South Sudan will meet to discuss how to improve border security and resume vital oil flows. South Sudan stopped its entire oil production of about 350,000 barrels per day for most of 2012 following a dispute with Khartoum on oil transit fee. (Editing by Himani Sarkar)

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