"There was the fiscal cliff euphoria, but the markets are a little overdone and people realize you still have the debt ceiling battle, social security taxes going up and dealing with spending sequestration and budget cuts," said Mark Waggoner, president at Excel Futures Inc.
Brent crude traded up $1.36 to settle at $112.47 a barrel, off the earlier highs but above the 100-day moving average of $111.29. After two straight sessions of gains, the Brent's 14-day moving average hit $109.80 a barrel, and was close to pushing above the 200-day moving average of $109.82.
U.S. light, sweet crude gained $1.30 to settle at $93.12 a barrel, pushing above the 200-day moving average of $91.90 but off earlier highs of $93.87.
Trading volumes showed signs of rebounding after dropping off during the late December holiday period, with Brent volumes slightly above the 30-day moving average, while U.S. crude volumes were down 11 percent below that level.
U.S. RBOB gasoline futures traded up 1.3 percent, boosted by news Monroe Energy LLC had taken the gasoline-making fluid catalytic cracking unit (FCC) offline for 10 to 14 days at its 185,000-barrel-per-day refinery in Trainer, Pennsylvania, over the weekend to address issues with the slurry circuit.
he market was also awaiting weekly U.S. oil inventory data, delayed by the New Year's holiday, for signals on direction. Reports from the American Petroleum Institute and the U.S. Energy Information Administration, due out on Thursday and Friday, respectively, were expected to show builds in refined product stockpiles and a draw in crude inventories, according to a Reuters poll of analysts.
Further support for oil came from positive economic data from the United States and China, the two largest consuming nations. U.S. manufacturing ended 2012 on an upswing, with factories returning to growth in December after contracting the previous month, the Institute for Supply Management said.
China's official manufacturing purchasing managers' index held steady in December at 50.6, adding to evidence its economy picked up in the fourth quarter of 2012 after gross domestic product growth slowed for seven straight quarters.
Traders were watching tensions in the Middle East for signs of threats to production in the vital area. Iran is carrying out naval drills in the Strait of Hormuz, the shipping route through which 40 percent of the world's sea-borne oil exports pass.
Iran has threatened to block Hormuz if the country comes under military attack over its disputed nuclear program. The United States has said it would not tolerate any obstruction of commercial traffic through the strait.
The civil conflict in Syria, sectarian strife in OPEC-member Iraq and the ongoing tensions between Israel and its neighbors should remain potential flashpoints in the energy-rich region.