U.S. oil futures rose to the highest in more than nine weeks on Wednesday on hopes that renewed talks will prevent a U.S. fiscal crisis, and as cold weather and technical buying added to the upward momentum.
U.S. light, sweet crude for February delivery rose by 2.7 percent to settle at $90.98 per barrel, and reached its highest intraday level since October 19. Brent crude rose 2.1 percent to settle at $111.07. Volumes were thin with some traders absent during the U.S. holiday season. U.K. markets were shut on Wednesday for Boxing Day.
President Barack Obama's will cut short a vacation to return to Washington early on Thursday and hold budget talks aimed at averting the so-called fiscal cliff, a series of automatic tax increases and government spending cuts. The measures would take effect next week if the administration and lawmakers are unable to reach a deal.
Forecasts for temperatures at below seasonal norms also helped boost oil prices, since a cold snap can raise demand for products like heating oil. Commodity Weather Group expects a cold pattern to continue for most of the United States for the next 10 days.
Technical buying also helped boost U.S. oil futures, which extended gains on Wednesday after breaking through a 100-day moving average for the first time since October. That move could set up a test of the 200-day mark at $92.20 a barrel, traders said.
"The market is taking advantage of thin holiday trading, boosting out of its trading range. It's thin volumes and technical trading," said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut.
Some traders attributed gains in part to news that OPEC member country the United Arab Emirates said on Wednesday it had arrested a "cell" of UAE and Saudi Arabian nationals who were allegedly planning to carry out attacks in both countries, which hold some of the world's largest oil fields.
Traders have been placing a premium on oil for months due to geopolitical tensions in the Middle East.
Crude also rose due to buying at a key technical support level above $90 a barrel, and possible algorithmic short-covering, traders said. Oil prices rose in spite of a modest drop for U.S. equities prices, as the S&P 500 index fell by 0.3 percent.
A slight weakening of the U.S. dollar, which fell 0.05 percent against a basket of foreign currencies also helped push crude higher, they said. A weaker dollar can make commodities cheaper for holders of foreign currencies.
Oil markets had been mostly flat on Monday, the last trading day before Christmas. Prices had dropped by more than 1 percent on Friday after U.S. fiscal talks Last broke down.
Product Prices Rise
Heating oil prices, which have tumbled relative to crude over the past two months due to unusually warm winter conditions, tracked crude's gains on Wednesday, rising by 1.7 percent.
Gasoline futures rose 2.3 percent to extend a three-week rally as traders anticipated refinery maintenance that will constrict supplies in the U.S. Northeast.
Oil was also supported by expectations Japan's new prime minister will pursue drastic stimulus policies to drive the economy of the world's third-largest oil consumer out of deflation.
Shinzo Abe was voted in as prime minister by parliament's lower house on Wednesday, giving the hawkish lawmaker a second chance at Japan's top job.