"Everything is keying on the 'cliff' hopes, because people are assessing if we're closer to a deal," said Mark Waggoner, president at Excel Futures Inc. The budget debate and the ongoing euro zone crisis have weighed on oil markets for months, raising worries that sluggish fuel demand in developed economies could fall even further. Investors have balanced consumption concerns against potential supply disruptions because of rising unrest in the Middle East.
Gasoline and heating oil futures led the oil complex higher on Tuesday, on word Motiva Enterprises would again halt some production on the 325,000-barrel-per-day (bpd) crude distillation unit at its Port Arthur, Texas, refinery for more repairs. The unit was shut down shortly after being launched this year due to problems with pipes. Front-month Brent crude oil prices rose $1.12 to $108.76 a barrel by 2:06 pm (1906 GMT), briefly topping the 14-day moving average of $108.87 a barrel.
January US crude oil futures gained 57 cents to trade at $87.77 a barrel, breaking above the 50-day moving average of $87.64 a barrel after testing that level during Monday's trade. RBOB gasoline and heating oil futures rose by 1.5 and 1.6 percent, respectively.
"Problems with the crude unit at the Motiva refinery in Texas have helped lift gasoline and heating oil futures," said John Kilduff, partner at Again Capital LLC in New York.
Motiva's decision to reduce production to conduct maintenance on a "minor leak" comes one day after a small fire broke out on the troubled unit, called VPS-5, which has spent more time being repaired than in production since it started up for the first time in late April.
As Brent crude prices headed toward the end of the year close to levels where they started 2012, Ali al-Naimi, oil minister of Opec kingpin Saudi Arabia, said the market was well balanced with prices above $100 a barrel. The world's largest exporter has tried to achieve that level by adjusting production levels over the last two years.
Average Brent crude prices have been relatively stable over the past two years, though they have at times spiked toward $120 and above as supplies from the Middle East have been disrupted by the Arab Spring and as Western sanctions cut Iranian oil exports. Traders were also awaiting weekly US inventory data, due out late Tuesday and early Wednesday, for market direction. A Reuters poll forecast the data would show a drawdown in crude stockpiles by US refineries during the week to December 14 for year-end tax purposes.