UPDATE 6-Brent crude closes in on record high average for 2012
* Oil prices boosted by signs of fiscal cliff deal
* Brent crude oil heads for record annual average over $111/bbl
* Brent prices to post 4th straight full-year gain
* Coming up: API oil data 4:30 p.m. EST Thursday
NEW YORK, Dec 31 (Reuters) - Brent crude rose on Monday, headed to close a record year and the fourth straight year prices have climbed, bolstered by geopolitical threats to production that offset worries about flagging oil demand.
As oil prices edged higher on optimism about a positive outcome to the U.S. budget negotiations, Brent was set to average over $111 a barrel for 2012, the highest annual average on record. The international benchmark was on target to gain nearly 3 percent for the year, adding to gains of 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 in developed economies 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 -- and Canada.
Amid signs on Monday afternoon of an emerging deal to avoid the U.S. budget crisis that could send the world's top oil consumer into recession, both Brent and U.S. crude prices pushed higher.
Brent February crude erased early losses to trade up 26 cents to $110.88 a barrel at 1:05 p.m. EST (1805 GMT). Brent was on track to average $111.66 for 2012, on track to eclipse the previous record daily average of $110.91 in 2011.
U.S. February crude rose 67 cents to trade at $91.47 a barrel, having fallen to $90.00 before recovering back above the 100-day moving average of $90.61.
Trading volume remained thinned by the year-end holiday season. Total Brent volume was 58 percent under the 30-day average, with U.S. turnover 70 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)