The price of oil pushed towards $88 a barrel on Tuesday amid hopes that U.S. leaders can reach a budget deal and avoid automatic tax and spending cuts that might dampen growth and crimp demand for crude.
By early afternoon in Europe, benchmark oil for January delivery was up 56 cents at $87.76 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose 47 cents to close at $87.20 on Monday in New York.
In London, Brent crude, which is used to price international varieties of oil, was up 66 cents to $108.30 on the ICE Futures exchange.
Optimism that the so called "fiscal cliff" will be avoided has increased as President Barack Obama backs away from what had once been ironclad positions. A new proposal handed to House Speaker John Boehner on Monday drops Obama's long-held insistence that taxes rise on individuals earning more than $200,000 and families making more than $250,000.
Obama is now offering a new threshold of $400,000 and lowering his 10-year tax revenue goals from the $1.6 trillion he had argued for a few weeks ago. The meeting came after Boehner, who is fronting negotiations for the Republican-controlled Congress, on Friday offered to raise taxes on some wealthy earners, but only if Obama agrees to cuts in benefit programs.
The Nymex contract was also supported by the early 2013 expansion of the Seaway pipeline from 250,000 to 400,000 barrels a day. It transports crude from the key deliver point of Cushing, Oklahoma, to refineries along the Gulf Coast.
The expansion will alleviate "the glut of discounted landlocked crude in the U.S.," analysts at JBC Energy in Vienna said. "Furthermore, it was announced that the pipeline should reach its final designed capacity of 850,000 barrels a day as soon as Q1 2014 — suggesting that the expansion works are well underway."
Investors will also be monitoring fresh information on U.S. stockpiles of crude and refined products.
Data for the week ending Dec. 14 are expected to show a draw of 2.3 million barrels in crude oil stocks and a build of 2 million barrels in gasoline stocks, according to a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos.
The American Petroleum Institute will release its report on oil stocks later Tuesday, while the report from the Energy Department's Energy Information Administration — the market benchmark — will be out on Wednesday.
In other energy futures trading on the Nymex:
— Heating oil rose 2.07 cents to $2.9745 a gallon.
— Natural gas added 1.7 cents to $3.375 per 1,000 cubic feet.
— Wholesale gasoline advanced 1.96 cents to $2.6692 a gallon.