Oil prices soared on promising economic news out of Europe and the U.S.
Benchmark crude on Tuesday rose $3.34, or 3.6 percent, to end the day at $97.22 per barrel in New York. Brent crude, which is used to price foreign oil that's imported by many U.S. refineries, rose $3.09, or 3 percent, to finish at $106.73 per barrel in London.
Major stock indexes were up around 3 percent in afternoon trading.
Prices climbed on encouraging news about the global economy. Germany reported that business and consumer confidence rose unexpectedly in December, and Spain's borrowing costs plummeted in a debt auction as the country promised more austerity measures to resolve its debt problems.
In the U.S. retailers said holiday sales jumped last week, while the government reported a surge in apartment construction and building permits in November.
If consumer spending and construction activity continue to grow, demand for oil will likely follow.
PFGBest analyst Phil Flynn said that oil traders also are increasingly concerned about political instability in Kazakhstan, which exports about 1.3 million barrels of oil per day. The Central Asian nation has been battling political protests that have resulted in about 15 deaths in the last month.
Over the weekend, Kazakhstan's president imposed a state of emergency in one city, and the interior minister said firearms will be deployed in skirmishes with protestors.
"That's really gotten everyone's attention today," Flynn said.
Although Kazakhstan supplies less than 2 percent of the world's oil, petroleum stockpiles are so tight that any disruption could send tremors through oil markets. A rebellion in Libya this year sent oil prices to three-year highs near $114 per barrel.
Meanwhile, Americans continued to cut back on gasoline. MasterCard SpendingPulse said Tuesday that the four-week average gasoline demand dropped by 4.2 percent when compared with the same period last year. Demand at the pump has been down for nearly 10 months.
Retail gasoline prices fell by less than a penny Tuesday to a national average of $3.21 per gallon, according to AAA, Wright Express and Oil Price Information Service. A gallon of regular has dropped more than 77 cents since its peak near $4 per gallon this year. Drivers are still paying about 23 cents more per gallon than they did a year ago. The national average in 2011 is expected to be the highest ever at above $3.50 per gallon.
In other energy trading, heating oil rose 6.9 cents to finish at $2.8494 per gallon, and gasoline futures rose 8.96 cents to end at $2.5787 per gallon. Natural gas rose 3.2 cents to finish the day at $3.128 per 1,000 cubic feet.